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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 financial calculators and tools, publishing original and objective content. This allows you to conduct your own research and analyze information at no cost - so you can make decisions about your finances without a doubt. Bankrate has partnerships with issuers such as, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The products that are featured on this site are from companies who pay us. This compensation could affect how and where products appear on this site, including, for example, the order in which they appear in the listing categories, except where prohibited by law for our loan products, such as mortgages and home equity, and other home lending products. However, this compensation will affect the information we provide, or the reviews you see on this site. We do not contain the universe of companies or financial offers that may be accessible to you.



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

TJ Porter works as a contributing writer at Bankrate with eight years of experience in writing about financial matters. TJ writes on a variety of subjects, including .







Editor: 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 the confidence to manage their finances by providing precise, well-studied facts that break down complex topics into manageable bites.









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When scammers targeted homeowners in the recession in housing and the recession, car loan frauds are beginning to attract the attention of government watchdogs. The scams vary from illegal techniques for financing that force consumers into unfavorable financial agreements to deceitful negative equity contracts that leave consumers in debt for greater automobile loan debt than expected. Many scammers target people who must catch up on their debts and want to avoid getting their cars taken away. These scams can be costly to avoid, so be aware of the 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 offering a service. The car loan modification scams offer to lower your car loan payments. In exchange for helping you accomplish their goal, scammers demand an unfathomably high fee up front. Scammers usually ask for fees in advance or for unusual forms of payment. They may also pressure to sign an agreement, and they will usually not even check your credit score. They may also instruct you to not make auto loan payments while they "negotiate" with your lender. It's not uncommon for scammers to request more money while continuing their so-called efforts on your behalf. And in some cases, the scam company may ask for you to pay your car directly to them, not your lender. "The scams are similar to mortgage loan change scams and the scammers telling customers that they can stop their car from being taken away 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 can occur after just two or three months of non-payment. The longer you wait to make a phone call, the less alternatives you will have. "Auto lenders are not usually lowering interest rates or reducing the principal balance on a car," Ashe says. "If there is any relief to be found, it's usually to extend the duration of the loan to reduce your monthly payments , or to defer missing payments to the finalization period of loan. The loan will cost you more throughout the term of the loan, so there's no significant savingshowever at least you have an opportunity to make car payment." How can you avoid
To ensure that you do not fall subject of a vehicle loan modification fraud, the FTC recommends as when you are aware that you will And ignore any claims of lower car payments from suspicious companies.


Yo-yo financing scams A offers a favorable interest rate in front of a buyer, then yanks it back to make the already committed buyer agree to lower terms. This is how it works. A dealer will lead buyers to believe the financing is complete, accepts a trade-in or down payment, and permits buyers to walk out of the dealer with a brand new vehicle. Days, or perhaps weeks the dealer will contact the customer and inform them that the financing was not able to be completed. The buyer must come back to sign a new contract generally with lower terms. Sometimes, the dealership has already sold the vehicle that was traded in, leaving the buyer to pick between higher prices or no car at all. These scams usually target people who have fewer financing options due to the limited options 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 other forms of spot and conditional sales that are completely legal. They are also legal. FTC is currently drafting a for car dealers which includes provisions to guard consumers against frauds involving yo-yo loans. If the rule is adopted, it would stop dealers from misleading consumers when the transaction is actually finalized. What can you do to prevent
To avoid being a victim of a yoyo scam, buyers can come to the dealership with secured ahead of time. You will likely get the best interest rate by using the credit union or bank with which you already have an account. Also, bringing in the money already secured gives you .


Negative equity scams The FTC has initiated administrative actions in connection with Truth in Lending Act violations concerning how dealers dealt with negative equity. The dealers did not clearly explain to consumers that though they promised to "pay for" the outstanding balance through a trade-in transaction however, they actually took the negative equity and put it towards the new car loan balance. Many customers complained that they did not be aware of this until they signed the new paperwork for auto financing. "Consumers need to carefully study the documents before they sign it, since it doesn't matter what's said. It's all about the writing," Ashe says. "If you don't comprehend something, then don't write it." How can you avoid
After reviewing you loan documents, make sure to confirm that the loan amount is the amount you agreed to pay. If you find additional charges you aren't sure about, ask the finance department at the dealership to explain these to you. The trade-in must be considered as a distinct transaction. If you decide to make a new loan, the dealer needs to be clear about how that will affect the terms of your loan.


Loan packing dealers can make you feel pressured to and from services when you purchase the car. This could include extended warranties , rustproofing, tire rotation and service contracts. Although some of these products are useful, the majority are not. The dealer's primary goal at this point is to persuade you to pay more. But remember that you are not required to agree to any additional items. If any of the options interest you, try to negotiate the cost of the additional product just like you negotiate the price of the car. Keep in mind that when it's added to the loan, you're paying the interest. What can you do to stay clear of it?
Explore the options available and see what you can do on your own or at a shop elsewhere. It is possible that you can get the products or services at less cost and of better quality without wrapping the costs into the loan.


The bottom line Car loan modification frauds target those who are not creditworthy or are in arrears with their payments. If it appears too promising to be true, then it probably is. If you're having difficulty paying your loan the best option is talk to your lender directly. Lenders will often be willing to work with you when you demonstrate that you're doing your best to continue making payments.


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Written by Contributing writer

TJ Porter is a contributor writer for Bankrate with 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 editing and writing for Bankrate since late 2021. They are committed to helping readers to take control of their finances by providing precise, well-studied facts that break down complex topics into manageable bites.






Auto loans editor




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