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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 smarter financial decisions by providing you with interactive tools and financial calculators as well as publishing original and objective content, by enabling you to conduct your own research and analyze information at no cost - so you can make financial decisions without a doubt. Bankrate has agreements with issuers including, 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 can affect the way and where products appear on the site, such as for instance, the sequence in which they appear in the listing categories in the event that they are not permitted by law. Our loan products, such as mortgages and home equity and other home loan products. This compensation, however, does have no impact on the information we publish, or the reviews you read on this site. We do not cover the universe of companies or financial offerings that could be open to you.



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4 minutes read. Published on February 28, 2023.
Written by TJ Porter Written by a contributing writer

TJ Porter is a contributor writer for Bankrate with over eight years of experience writing about financial matters. TJ writes about a range of subjects, from to .







Edited by Rhys Subitch Edited by Auto loans editor

Rhys has been writing and editing for Bankrate from late 2021. They are dedicated to helping readers gain the confidence to manage their finances with precise, well-studied information that breaks down otherwise complex topics into manageable bites.









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While scammers targeted homeowners during the downturn in housing prices however, auto loan frauds are beginning to draw the attention of government watchdogs. These scams range from illegal techniques for financing that force consumers into unfavorable finance agreements, to misleading negative equity agreements which leave customers on the hook for more auto loan debt than they expected. Most scammers target owners of cars who are in need of catching up on their bills and wish to avoid having their cars repossessed. The scams could be costly and you should be aware of the warning indicators to be aware of. Car loan Modification scams A loan modification scam is a scam that is designed to steal your money without offering a service. Car loan modification scammers promise to lower your auto loan payments. In the exchange for helping you reach this goal, they will charge an astronomical amount up front. Scammers usually ask for fees upfront or unusual forms of payment. They can also try to convince to sign a contract and will often not even check on your credit report. The scammers may tell you to not make auto loan payments as they "negotiate" with your lender. It's also not uncommon for scammers and scammers to demand more money in exchange for their"efforts" on your case. In some instances the scam firm may ask for you to pay your car directly to it instead of your lender. "The scams are similar to mortgage loan change scams and the scammers claiming that they may be able to stop their car from being repossessed and that they could lower their payments," says Gregory Ashe is a senior attorney in the Bureau of Consumer Protection at the Federal Trade Commission. Repossession may occur within one or two months not paying. The longer you delay making the make a phone call, the less options you have. "Auto lenders are not typically cutting interest rates or reducing the principal balance of the 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 end term of loan. You'll pay more during the duration of the loan and there's no real savings -however at least you're given the chance to pay for your car payment." How can you avoid
To ensure that you do not fall subject of a vehicle loan modification scam To avoid being a victim of a scam, the FTC recommends as immediately as you can tell you will And ignore any false promises of lower vehicle payments from shady companies.


Yo-yo finance scams: A person offers a favorable interest rate to a buyer, then yanks it off to make an already committed buyer agree to lower terms. Here's how it works. A car dealer entices buyers to believe the financing is done, accepts a trade-in or a down payment and allows the buyer to leave the dealership with a brand new vehicle. Days, or perhaps weeks the dealer calls the buyer and say the financing did not go through. The buyer will have to come back and sign a new contract generally with more favorable conditions. Sometimes, the dealership is already selling the trade-in vehicle, leaving the buyer to pick between higher prices or none at all. These scams typically target customers who have fewer financing options due to the limited options they have . Yo-yo lending is not legal in all states, according to Paul D. Metrey, executive vice president for regulatory affairs at the National Automobile Dealers Association in McLean, Virginia. But there are also spot and conditional sales that are perfectly legal. In fact, the FTC is currently writing a regulation for car dealers which includes provisions to guard consumers against yo-yo financing traps. If it is enacted, the rule would prevent dealers from misrepresenting the fact that the transaction has been finalized. What can you do to prevent
To stay clear of a yo-yo fraud buyers should visit the dealership with secured ahead of time. It is likely that you will get a better interest rate through a bank or credit union with which your account is already open. Plus, walking in with credit that is already locked in gives you .


Negative equity scams The FTC has instituted administrative proceedings to address Truth in Lending Act violations concerning how dealers dealt with negative equity. They did not inform consumers that although they claimed the option to "pay off" the balance due through a trade-in transaction however, they actually took the negative equity and put it towards the new vehicle loan balance. A few clients complained that they didn't be aware of this until they signed their new auto financing documents. "Consumers need to carefully go through the document before they sign it, because it doesn't matter what's said. It's what's written," Ashe says. "If you don't comprehend something, then don't write it." How can you avoid
If you go through your loan documents, make sure to make sure the price is the amount you agreed to pay. If you discover additional costs you aren't sure about, ask the finance department at the dealership for a detailed explanation of these costs. Your trade-in should be treated as a distinct transaction. If you decide to into the new loan, the dealer needs to explain what the implications of this will be for the loan.


Loan packing dealers can induce you to purchase or provide services when buying a car. These might include an extended warranty, the rustproofing process, tire rotations and service agreements. Although some of these products may be beneficial, the majority aren't. The primary goal of the dealer at this point is to convince you to spend more money. However, you're not required to agree to any add-ons. If any of the options are appealing to you, you can try to negotiate 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 be paying interest on it. What can you do to stay clear of it?
Find out what's available and see what you can make yourself or purchase by a store elsewhere. It is possible that you can purchase the products or services at a lower price and superior quality without having to wrap them into your loan.


The most important thing to remember is that loan modification frauds target those who have bad credit or have a history of late payments. But if it seems too appealing to be true it's probably true. If you're having trouble paying your loan the best option is to contact your lender directly. The majority of lenders are willing to work with you if they can prove that you're doing your best to continue making payments.


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Written by a contributing writer

TJ Porter is a contributing writer for Bankrate with eight years of experience writing about financial matters. 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 since late 2021. They are committed to helping readers gain the confidence to take control of their finances by providing concise, well-researched and well-written data that breaks otherwise complex subjects into digestible pieces.






Auto loans editor




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