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How to spot auto loan fraud Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make better financial choices by offering you interactive tools and financial calculators, publishing original and objective content. We also allow you to conduct your own research and compare information without cost, so that you can make decisions about your finances without a doubt. Bankrate has agreements with issuers such as, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they appear within the listing categories in the event that they are not permitted by law. Our loans, mortgages,, or other home loan products. But this compensation does have no impact on the information we provide, or the reviews appear on this website. We do not cover the entire universe of businesses or financial offerings that could be accessible to you.
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4 min read Read Published 28 February 2023
Authored by TJ Porter. Written by the writer who contributed to the writing
TJ Porter is a contributor writer for Bankrate with over eight years of experience writing about finance. TJ writes about a wide range of subjects, including .
Editor: Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers gain the confidence to manage their finances with concise, well-researched and well-organized information that breaks down otherwise complicated subjects into digestible pieces.
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While scammers targeted homeowners during the recession in housing and the recession, car loan scams are now beginning to draw the attention of government watchdogs. The scams vary from illegal financing tricks that force consumers into unfavorable financial agreements to deceptive negative equity deals which leave customers on the hook for more car loan debt than they anticipated. Most scammers target owners of cars who need to catch up on their debts and want to avoid getting their cars repossessed. These scams can be expensive and you should be aware of the warning indicators to be aware of. Car loan modifications scams. A loan modification scam is a fraud created to extort your cash without providing a service. Scammers for car loan modification scams claim to reduce your auto loan payments. In the exchange for helping you reach this goal, they demand an unfathomably high fee upfront. Scammers usually demand fees upfront or unusual forms of payment. They can also try to convince you to sign an agreement, and they will usually not even check on your credit report. They may also tell you to not make auto loan payments while they “negotiate” with your lender. It’s also not uncommon for scammers to request additional money as they continue their so-called efforts on your behalf. In some instances the scammer may ask you to make payments on your car directly to them instead of your lender. “The scams are like the mortgage loan change scams and the scammers telling customers that they could prevent their car from being repossessing and they can lower their monthly payments,” says Gregory Ashe is a senior attorney in the Bureau of Consumer Protection at the Federal Trade Commission. Repossession can occur after just one or two months non-payment. The longer you wait to make a phone call, the less alternatives you will have. “Auto lenders aren’t typically offering lower interest rates or decreasing the principal balance of the car,” Ashe says. “If any relief is to be had, it’s typically to extend the duration of the loan to reduce your monthly payments , or to defer missing payments to the close term of loan. The loan will cost you more over the life of the loan, so there’s no significant savingshowever at least you have the chance to pay for your car payments.” How can you avoid
To avoid being the subject of a vehicle loan modification scam to avoid falling victim to a fraud, the FTC recommends that you do so as immediately as you can tell you’ll be a victim. You should also stay clear of claims of lower payment on your car from companies that are not trustworthy.
Yo-yo financing scams The seller offers a favorable interest rate to a buyer, then yanks it off to make an already committed buyer sign a contract with less favorable terms. This is how it is done. A car dealer entices buyers to believe the financing is final and will accept a trade-in or a down payment and allows the buyer to leave the dealer with a brand-new vehicle. Days or even weeks later the dealer will call the buyer and say the financing did not go through. The buyer must come back and sign a new agreement, typically with more favorable conditions. Sometimes, the dealer has already sold the car that they traded which leaves the buyer to pick between higher prices or no car at all. These scams usually target people with fewer financing options because they have . Yo-yo financing is illegal in every state, says Paul D. Metrey, the senior vice president of regulatory affairs for the National Automobile Dealers Association in McLean, Virginia. However, there are other forms of conditional sales and spot deliveries that are completely legal. They are also legal. FTC is currently writing a regulation for dealers in the automotive industry that contains language to protect consumers from yo-yo financing traps. If it is enacted, the rule would prevent dealers from misrepresenting when the transaction is actually completed. What are the best ways to stay clear of
To stay clear of a yo-yo fraud Buyers can go to the dealership with secured prior to the time. You’ll likely receive the best interest rate by using the credit union or bank that you already have an account. Additionally, coming in with the money already secured gives you .
Negative equity scams The FTC has initiated administrative actions for Truth in Lending Act violations regarding how those dealers handled negative equity. They did not explain to customers that even though they offered the option to “pay off” the balance due through a trade-in transaction but they actually took that negative equity and applied it to the borrower’s new car loan balance. Many customers complained that they did not be aware of that until they signed the new paperwork for auto financing. “Consumers should read the paperwork before signing it because it doesn’t matter what’s said. It’s all about the writing,” Ashe says. “If you don’t understand something, then don’t write it.” What can you do to stay clear of
If you go through you loan documents, make sure to make sure the price is what you agreed to pay. If you find additional charges Ask the finance manager at the dealership to explain these to you. The trade-in must be considered as a separate purchase. If you decide to into a new loan however, the lender needs to explain what the implications of this will be for the loan.
The loan packing dealer may induce you to purchase or provide services when buying a car. They could offer an extended warranty, tire rotation, rustproofing and service agreements. While some of these options can be useful, many aren’t. The primary goal of the dealer at this point is to convince you to pay more. However, you’re in no way bound to any add-ons. If any options appeal to you, try to negotiate the price for the extra item in the same way you negotiate the price of the car. Keep in mind that when it’s added to the loan you’ll have to pay the interest. How to avoid
Explore the options available and consider what you could do on your own or at a shop elsewhere. You might find that you can purchase the options or services for a lower price and higher quality, without incorporating them in your loan.
The bottom line Car loan modification scams target vulnerable buyers who have poor credit or who have a history of late payments. But if it seems too appealing to be true then it probably is. If you’re having trouble paying your loan, the best way to resolve the issue is contact the lender directly. Lenders will often be willing to collaborate with you if you show that you’re doing your best to make payments.
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Written by Contributing writer
TJ Porter is a contributing writer for Bankrate with over eight years of experience in writing about finance. TJ writes about a wide range of topics, ranging from .
The edit was done by Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers feel confident to control their finances by providing concise, well-researched and well-written information that breaks down otherwise complicated topics into bite-sized pieces.
Auto loans editor
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