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How to spot auto loan fraud Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal 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, by enabling you to conduct your own research and compare information for free - so that you can make decisions about your finances without a doubt. Bankrate has partnerships 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 site are from companies who pay us. This compensation could affect how and when products are featured on this site, including such things as the sequence in which they appear within the listing categories, except where prohibited by law for our mortgage, home equity, or other home loan products. This compensation, however, does not influence 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 accessible to you.



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4 minutes read. Published 28 February 2023
Written by TJ Porter Written by Contributing writer

TJ Porter is a contributing writer for Bankrate with eight years of experience writing about finance. TJ writes on a variety of subjects, including .







Edited by Rhys Subitch Edited by Auto loans editor

Rhys has been editing and writing for Bankrate since the end of 2021. They are passionate about helping readers gain the confidence to take control of their finances by providing concise, well-researched and well-organized facts that break down otherwise complicated subjects into digestible pieces.









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As scammers targeted homeowners during the downturn in housing prices however, auto loan frauds are now starting to draw the attention of government watchdogs. These scams range from illegal financing tricks that force consumers into unfavorable finance agreements, to deceptive negative equity deals which leave customers with higher automobile loan debt than they expected. Often scammers target car owners who are in need of catching up on their payments and want to avoid getting their cars taken away. The scams could be costly and you should be aware of the warning signs to watch out for. Scams involving car loan Modification scams A loan modification scam is a fraud created to extort your cash without offering a service. Car loan modification scams claim to reduce your auto loan payments. In exchange for helping you accomplish this goal, they charge an unfathomably high fee in advance. Scammers usually demand fees in advance or for unusual forms of payment. They can also try to convince you to sign an agreement and often ignore checking your credit score. The scammers may advise you to stop making auto loan payments while they "negotiate" with your lender. It's also not unusual for scammers and scammers to demand more money while continuing their alleged efforts to resolve your behalf. In some instances the scammer might ask you to make car payments directly to them instead of your lender. "The scams are like those of mortgage loan modification scams, with the scammers claiming that they can keep their vehicle from being taken away and that they can lower their monthly payment," 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 wait to contact the lender, the less alternatives you will have. "Auto lenders aren't typically offering lower interest rates or decreasing the principal balance on an automobile," Ashe says. "If any relief is to be found, it's usually to extend the duration of the loan to reduce your monthly payments , or to delay payments that aren't made until the finalization term of loan. The loan will cost you more over the life of the loan, so there's no savings in the long run -however, at least you're given a chance of affording your car payment." How can you avoid
To avoid becoming the victims of car loan modification scam to avoid falling victim to a fraud, the FTC recommends that you do so as soon as you realize you are susceptible to being a victim. Also, avoid too-good-to-be-true promises of lowered payment on your car from companies that are not trustworthy.


Yo-yo finance scams: A person dangles a good interest rate to the buyer, only to yank it away to make the already-committed buyer agree to worse conditions. This is how it operates. A car dealer entices the buyer to believe the financing is done and will accept a trade-in or down payment, and permits customers to depart the dealer with a brand-new vehicle. Some days and even weeks after the dealer will contact the customer and inform them that the financing fell through. The buyer will have to come back and sign a new contract generally with less favorable conditions. Sometimes, the dealership is already selling the car that they traded and the buyer is forced to pick between higher prices or none at all. These scams typically target customers with fewer financing options because they have . Yo-yo financing is illegal in all states, according to Paul D. Metrey, the senior vice president of regulatory affairs at the National Automobile Dealers Association in McLean, Virginia. But there are also spots and sales with conditional terms that are completely legal. They are also legal. FTC is currently working on a rule for dealers in the automotive industry that contains provisions to guard consumers against frauds involving yo-yo loans. If the rule is adopted, it would stop dealers from misleading consumers what the transaction actually concluded. How to avoid
To avoid a yo-yo scam Buyers can go to the dealership with secured ahead of time. You'll likely receive a better interest rate through the credit union or bank with which you already have an account. Additionally, coming in with credit that is already locked in will give you .


Negative equity scams FTC has instituted administrative proceedings to address Truth in Lending Act violations concerning how dealers dealt with negative equity. The dealers failed to clearly inform consumers that although they promised the option to "pay off" the outstanding balance through a trade-in transaction however, they actually took the negative equity and put it towards the new car loan balance. A few customers complained that they did not be aware of this until they signed their new auto financing documents. "Consumers need to carefully study the documents before they sign it, since it doesn't matter how it's written. It's what's written," Ashe says. "If you don't comprehend something, then don't sign it." How to avoid
When you review the loan documents, you should confirm that the loan amount is what you agreed to pay. If you find additional charges Ask the finance manager at the dealership to explain these to you. Your trade-in should be treated as a separate transaction. If you decide to enter into the new loan but the dealer has to be clear about how that will affect your loan.


Loan packing dealers can make you feel pressured to or provide services when buying the car. These might include an extended warranty, , tire rotation, rustproofing and service contracts. While some of these options may be beneficial, the majority aren't. The primary goal of the dealer for this moment is convince you to pay more. However, you're under no obligation to agree to any add-ons. If some options appeal to you, consider negotiating the price of the additional item in the same way you negotiate the price of the car itself. Remember, when it's added to the loan you'll be paying interest on it. How to avoid
Find out what's available and consider what you could make yourself or purchase by a store elsewhere. You might find that you can purchase the services or options at a lower price and superior quality without having to wrap them in the loan.


The most important thing to remember is that loan modification frauds target buyers with weak credit scores. are not creditworthy or are late on 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 contact your lender directly. Lenders will often be willing to work with you if they can prove that you're doing your best to make payments.


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Written by Contributing writer

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



Editor: Rhys Subitch Edited by Auto loans editor

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






Auto loans editor




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