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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 smarter financial decisions by offering you interactive financial calculators and tools, publishing original and objective content. We also allow users to conduct research and analyze information for free - so that you can make financial choices with confidence. Bankrate has agreements with issuers such as, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The products that are featured 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 instance, the order in which they may be listed within the categories of listing in the event that they are not permitted by law for our mortgage, home equity, or other products for home loans. However, this compensation will not influence the content we publish or the reviews that you see on this site. We do not cover the vast array of companies or financial offerings that could be open to you.



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4 min read Published February 28, 2023
Written by TJ Porter. Written by the writer who contributed to the writing

TJ Porter works as a contributing writer for Bankrate with over eight years of experience in writing about finance. TJ writes on a variety of topics, ranging from .







The edit was done by Rhys Subitch Edited by Auto loans editor

Rhys has been writing and editing for Bankrate since the end of 2021. They are dedicated to helping readers gain the confidence to take control of their finances with concise, well-researched and well-organized data that has broken down complex topics into manageable bites.









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While scammers targeted homeowners during the recession in housing and the recession, car loan frauds are now starting to draw the attention of the government watchdogs. These scams range from shady financing tricks that force consumers into unfavorable finance agreements, to misleading negative equity agreements that leave consumers with more car loan debt than they anticipated. Many scammers target people who must catch up on their bills and wish to avoid having their cars repossessed. The scams could be costly, so understand the signs to watch out for. Car loan Modification scams A loan modification scam is a fraud that is designed to steal your money without providing a service. Scammers for car loan modification scammers promise to lower your auto loan payments. In the exchange for helping you reach the goal they charge a steep fee up front. Scammers typically ask for fees in advance or for unusual forms of payment. They might also force you into signing an agreement, and they will usually not even check your credit score. The scammers might tell you to not make auto loan payments while they "negotiate" with your lender. It's also not uncommon for scammers and scammers to demand more money while continuing their so-called efforts on your behalf. In some instances, the scam company might ask you to make car payments directly to it instead of your lender. "The scams are similar to mortgage loan change scams with the scammers telling victims that they can prevent their car from being repossessed and that they could lower their payment," says Gregory Ashe Senior Staff Attorney with the Bureau of Consumer Protection at the Federal Trade Commission. Repossession can occur after just one or two months inability to pay. The longer you wait to make a phone call, 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 you do have any relief that can be obtained, it's generally to extend the duration of the loan to lower your monthly payments , or to postpone payments due to late payments until the end period of loan. The loan will cost you more during the duration of the loan, so there's no savings in the long run -however at least you have the chance to pay for your car payments." What can you do to stay out of trouble?
To avoid being the subject of a vehicle loan modification scam, the FTC suggests that you take action as immediately as you can tell you are susceptible to being a victim. Also, avoid false promises of lower payment on your car from companies that are not trustworthy.


Yo-yo financing scams A offers a favorable interest rate in front of the buyer, only to yank it back to make the already-committed buyer agree to worse terms. This is how it works. A car dealer entices the buyer to believe the financing is final, accepts a trade-in or a down payment and allows the buyer to leave the dealership with a brand-new car. A few days or even weeks later, the dealer will contact the customer and inform them that the financing did not go through. The buyer has to return to sign a new contract usually with less favorable terms. Sometimes, the dealer had already offered to sell the car that they traded, leaving the buyer to choose between higher rates or no car at all. These scams usually target people with less financing options, as they don't have . Yo-yo lending is not legal in all states, according to Paul D. Metrey, senior vice president for regulatory affairs at the National Automobile Dealers Association in McLean, Virginia. However, there are spots and sales with conditional terms that are completely legal. They are also legal. FTC is currently drafting a for car dealers which includes language to protect consumers from yo-yo financing traps. If the rule is adopted, it will prevent dealers from making false representations what the transaction actually completed. What are the best ways to stay clear of
To avoid being a victim of a yoyo scam buyers should visit the dealership with their credit card secured prior to the time. You'll likely receive the best interest rate by using an institution like a credit union or bank with which you already have an account. Plus, walking in with financing already locked down can give you .


Negative equity scams FTC has taken administrative action for Truth in Lending Act violations in the way that dealers handled negative equity. The dealers failed to clearly inform consumers that although they offered the option to "pay the balance" the outstanding balance through a trade-in transaction but they actually took that negative equity and applied it to the new car loan balance. A few clients complained that they didn't realize this until they had signed their new auto financing paperwork. "Consumers should go through the document before they sign it, because it doesn't matter what's written. It's all about the writing," Ashe says. "If you don't understand something, then don't write it." How can you avoid
If you go through you loan documents, check to make sure the price is what you agreed to pay. If you discover additional costs you aren't sure about, ask the finance department at the dealership to explain these to you. Your trade-in should be treated as a distinct transaction. While you can choose to enter into the new loan however, the lender needs to explain how this affects your loan.


The loan packing dealer may make you feel pressured to and services when you buy a car. This could include extended warranties , rustproofing, tire rotation and service agreements. While some of these options may be beneficial, the majority aren't. The primary goal of the dealer at this point is to convince you to spend more money. But remember that you are not required to agree to any additional items. If any options appeal to you, consider negotiating the cost of the additional product just like you discuss the price of the car. Remember, when it's added to the loan you'll have to pay interest on it. What can you do to stay clear of it?
Research what is being offered and then see what you can do on your own or at a shop elsewhere. It is possible that you can find the options or services for an affordable price and with superior quality without having to wrap the costs into the loan.


The main point is that loan modification frauds target those who have poor credit or who have a history of late payments. If the offer seems too good to be true, then it probably is. If you're having trouble paying your loan the best option is contact your lender directly. Lenders will often be willing to collaborate with you when you demonstrate that you're making an honest effort to make payments.


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Written by a contributing writer

TJ Porter is a contributing writer for Bankrate with over eight years of experience writing about finance. TJ writes about a wide range of subjects, from to .



Edited by Rhys Subitch Edited by Auto loans editor

Rhys has been writing and editing for Bankrate since late 2021. They are dedicated to helping their readers gain the confidence to take control of their finances with concise, well-researched and well-written facts that break down otherwise complex subjects into digestible pieces.






Auto loans editor




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