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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 you to conduct your own research and compare data without cost, so that you can make decisions about your finances with confidence. Bankrate has agreements with issuers including, 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 come from companies who pay us. This compensation can affect the way and where products appear on the site, such as, for example, the order in which they may be listed within the categories of listing and other categories, unless prohibited by law. This applies to our loans, mortgages, and other products for home loans. This compensation, however, does not influence the content we publish or the reviews you read on this site. We do not contain the vast array of companies or financial deals that may be open to you.



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4 min read Read Published on February 28, 2023.
Authored by TJ Porter. Written by Contributing writer

TJ Porter works as a contributor writer for Bankrate with eight years of experience in writing about financial matters. TJ writes about a range of subjects, including .







Edited by Rhys Subitch Edited by Auto loans editor

Rhys has been writing and editing for Bankrate since the end of 2021. They are passionate about helping readers gain confidence to manage their finances through providing precise, well-studied facts that break down otherwise complicated subjects into digestible pieces.









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When scammers targeted homeowners in the downturn in housing prices and the recession, car loan frauds are now starting to grab the attention of watchdogs from government agencies. These scams range from shady techniques for financing that force consumers into unfavorable financing agreements to misleading negative equity agreements which leave customers with greater automobile loan debt than they anticipated. Most scammers target owners of cars who need to catch up on their debts and want to avoid having their cars repossessed. The scams could be costly to avoid, so be aware of the dangers to look out for. The scam of car loan Modification scams A loan modification scam is a fraud created to extort your cash without offering a service. Car loan modification scams promise to lower your auto loan payment. In exchange for helping you accomplish this 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 to sign an agreement and often skip checking the credit rating of your. The scammers might tell you to not make auto loan payments as they "negotiate" with your lender. It's not uncommon for scammers to request additional money as they continue their so-called efforts on your case. In certain cases, the scam company may ask you to make payments on your car directly to them, not your lender. "The scams are like those of mortgage loan modification scams, with the scammers claiming that they can keep their vehicle from being repossessing and they could lower their payment," says Gregory Ashe is a senior attorney in the Bureau of Consumer Protection at the Federal Trade Commission. Repossession may occur within two or three months of inability to pay. The longer you delay making the contact the lender, the less alternatives you will have. "Auto lenders are not typically cutting interest rates or reducing the principal balance on the car," Ashe says. "If you do have any relief that can be had, it's typically to extend the term of the loan to decrease your monthly payments or to postpone payments due to late payments until the end of the loan. There will be a higher cost over the life of the loan and there's no significant savingshowever, at least you'll have a chance of affording your car payment." How can you avoid
To avoid becoming the subject of a vehicle loan modification fraud, the FTC recommends as immediately as you can tell you'll be a victim. You should also stay clear of claims of lower vehicle payments from shady companies.


Yo-yo finance scams: A person advertises a low interest rate to buyers, and then pulls it off to make an already committed buyer sign a contract with less favorable terms. This is how it is done. A dealer will lead buyers to believe the financing is complete, accepts a trade-in or down payment, and permits the buyer to leave the dealer with a brand new vehicle. A few days and even weeks after, the dealer will contact the buyer and say the financing fell through. The buyer will have to come back and sign a new contract generally with lower conditions. Sometimes, the dealer is already selling the trade-in vehicle and the buyer is forced to choose between higher rates or the car is not even available. These scams typically target customers who have fewer financing options due to the limited options they do not have . Yo-yo lending is not legal in every state, says Paul D. Metrey, senior vice president for regulatory affairs at the National Automobile Dealers Association in McLean, Virginia. However, there are spot and conditional sales that are completely legal. The FTC is currently drafting a 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 avoid a yo-yo scam Buyers can go to the dealership with their credit card secured prior to the time. You'll likely receive the best interest rate by using a bank or credit union that there is an existing account. Plus, walking in with credit that is already locked in gives you .


Negative equity scams FTC has taken administrative action to address Truth in Lending Act violations in the way that dealers handled negative equity. The dealers did not clearly explain to consumers that though they claimed the option to "pay off" the outstanding balance on a trade-in however, they actually took the negative equity and applied it to the new car loan balance. Some clients complained that they didn't be aware of this until they signed their new auto financing paperwork. "Consumers need to carefully go through the document before they sign it, since it doesn't matter what's said. It's what's written," Ashe says. "If you don't comprehend something, don't sign it." How can you avoid
After reviewing your loan documents, you should make sure the price is what you were obligated 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 is treated as a distinct transaction. If you decide to enter into a new loan but the dealer has to be clear about how that will affect the loan.


Loan packing Dealers may make you feel pressured to and from services when you purchase a car. This could include an extended warranty, , the rustproofing process, tire rotations and service agreements. While some of these items may be beneficial, the majority aren't. The main goal of the seller for this moment is get you to pay more. Be aware that you are in no way bound to any add-ons. If any of the options are appealing to you, you can try to negotiate the cost of the additional item in the same way you negotiate the price of the car itself. Be aware that when you add it to the loan you'll have to pay an interest rate on the loan. How can you avoid it?
Explore the options available and then see what you can do on your own or at a shop elsewhere. It is possible that you can find the products or services at less cost and of superior quality without having to wrap them into the loan.


The most important thing to remember is that loan modification frauds target those who have poor credit or who are late on their payments. If the offer sounds too appealing to be true it's probably true. If you're having difficulty paying your loan the best way to resolve the issue is to contact the lender directly. Lenders will often be willing to collaborate with you if they can prove that you're making an honest effort to continue making payments.


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Written by a contributing writer

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 subjects, including .



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 passionate about helping readers feel confident to manage their finances by providing concise, well-researched and well-written information that breaks down otherwise complicated topics into bite-sized pieces.






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