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How to spot auto loan fraud Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make better financial choices by providing you with interactive tools and financial calculators as well as publishing original and objective content. This allows users to conduct research and compare data for free – so that you can make financial choices with confidence. Bankrate has agreements with issuers, including but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Profit The offers that appear on this website are provided by companies who pay us. This compensation may impact how and where products appear on this website, for example, for example, the sequence in which they appear within the listing categories and other categories, unless prohibited by law. Our loan products, such as mortgages and home equity and other products for home loans. This compensation, however, does have no impact on the information we publish, or the reviews that you read on this site. We do not contain the vast array of companies or financial offerings that could be open to you.
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4 min read Published 28 February 2023
Authored by TJ Porter. Written by the writer who contributed to the writing
TJ Porter works as a contributing writer at Bankrate with over eight years of experience writing about finance. TJ writes about a range of subjects, including .
The edit was done by Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate from late 2021. They are dedicated to helping readers gain the confidence to manage their finances by providing precise, well-studied data that has broken down otherwise complicated subjects into digestible pieces.
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While scammers targeted homeowners during the housing downturn however, auto loan frauds are now starting to draw the attention of government watchdogs. The scams vary from illegal financial tricks that force customers into unfavorable finance agreements, to misleading negative equity agreements which leave customers in debt for higher auto loan debt than expected. Many scammers target people who need to catch up on their payments and want to keep their vehicles from being repossessed. These scams can be expensive and you should be aware of the warning indicators to be aware of. Scams involving car loan modification scams A car loan modification scam is a scam created to extort your cash without providing a service. The car loan modification scammers offer to lower your car loan payment. In exchange for helping you accomplish the goal they will charge an unfathomably high fee up front. Scammers typically ask for charges upfront or other unusual methods of payment. They may also pressure you into signing a contract and will often ignore checking your credit score. They may also advise you to stop making auto loan payments as they “negotiate” with your lender. It’s not uncommon for scammers and scammers to demand more money while continuing their alleged efforts to resolve your behalf. And in some cases the scammer may ask you to make car payments directly to them, not your lender. “The scams are like the mortgage loan modifications scams and the scammers claiming that they may be able to keep their vehicle from being repossessed and that they can lower their monthly payment,” says Gregory Ashe, senior staff attorney with the Bureau of Consumer Protection at the Federal Trade Commission. Repossession may occur within one or two months inability to pay. The longer you delay making the contact the lender, the less options will be available. “Auto lenders aren’t typically offering lower interest rates or decreasing the principal balance of a car,” Ashe says. “If any relief is to be had, it’s typically to extend the length of the loan to reduce your monthly payments or to postpone payments due to late payments until the close of the loan. You’ll pay more throughout the term of the loan, so there’s no significant savingshowever, at least you’re given a chance of affording your vehicle payments.” How to avoid
To avoid becoming the subject of a vehicle loan modification scam to avoid falling victim to a fraud, the FTC suggests that you take action as immediately as you can tell you will And ignore any too-good-to-be-true promises of lowered payment on your car from companies that are not trustworthy.
Yo-yo finance scams: A person advertises a low interest rate in front of buyers, and then pulls it off to make an already-committed buyer agree to worse terms. Here’s how it works. A dealer will lead the buyer to believe the financing is complete and will accept a trade-in or an offer for a down payment, and then allows buyers to walk out of the dealer with a brand-new vehicle. A few days, or perhaps weeks the dealer will contact the customer and inform them that the financing fell through. The buyer will have to come back to sign a new contract usually with lower conditions. Sometimes, the dealer had already offered to sell the car that they traded, leaving the buyer to choose between higher rates or the car is not even available. These scams often target consumers with fewer financing options because they don’t 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 conditional sales and spot deliveries that are perfectly legal. They are also legal. FTC is currently working on a rule for car dealers that includes language to protect consumers from the yo-yo finance traps. If the rule is adopted, it will prevent dealers from making false representations the fact that the transaction has been completed. How to avoid
To stay clear of a yo-yo fraud buyers should visit the dealership with secured before the scheduled time. It is likely that you will get a better interest rate through the credit union or bank with which you already have an account. Also, bringing in credit that is already locked in will give you .
Negative equity scams The FTC has initiated administrative actions for Truth in Lending Act violations concerning how dealers dealt with negative equity. They did not explain to consumers that though they offered the option to “pay for” the balance due to a trade-in but they actually took that negative equity and put it towards the borrower’s new car loan balance. Some customers complained that they did not know this until they had signed the new paperwork for auto financing. “Consumers need to carefully go through the document before signing it because it doesn’t matter what’s said. It matters what’s in writing,” Ashe says. “If you don’t comprehend something, don’t sign it.” How can you avoid
If you go through you loan documents, you should make sure the price is the amount you agreed to pay. If you discover additional costs Ask the finance manager at the dealership for a detailed explanation of these costs. Your trade-in should be treated as a separate transaction. If you decide to enter into an existing loan, the dealer needs to be clear about how that will affect the terms of your loan.
The loan packing dealer may make you feel pressured to or provide services when buying the car. This could include an extended warranty, the rustproofing process, tire rotations and service agreements. While some of these items can be useful, many are not. The dealer’s primary goal at this point is to persuade you to pay more. However, you’re under no obligation to agree to any additional items. If some of the options interest you, consider negotiating the cost of the additional item in the same way you discuss the price of the car itself. Be aware that when you add it to the loan you’ll have to pay interest on it. How to avoid
Research what is being offered and consider what you could do yourself or get done at a shop elsewhere. You may find that you can get the services or options at a lower price and better quality without wrapping them in your loan.
The main point is that loan modification scams target vulnerable buyers who are not creditworthy or are late on their payments. If the offer appears too good to be true, then it probably is. If you’re having difficulty paying your loan the best way to resolve the issue is to contact the lender directly. The majority of lenders are willing to work with you when you demonstrate that you’re taking a genuine effort to make payments.
Written by Contributing writer
TJ Porter is a contributor writer for Bankrate with eight years of experience writing about finance. TJ writes about a range of topics, ranging from .
Editor: Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate from late 2021. They are dedicated to helping their readers feel confident to take control of their finances with precise, well-studied facts that break down complex topics into manageable bites.
Auto loans editor
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