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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 offering you interactive financial calculators and tools that provide objective and original content, by enabling you to conduct research and compare data 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 Earn Money The offers that appear on this website are provided by companies that compensate us. This compensation can affect the way and where products appear on this site, including for instance, the order in which they be listed within the categories of listing, except where prohibited by law. This applies to our mortgage, home equity, or other home lending products. This compensation, however, does not influence the information we provide, or the reviews you see on this site. We do not include the universe of companies or financial offerings that could be open to you.



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

TJ Porter is a contributing writer at Bankrate with 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 late 2021. They are dedicated to helping readers gain confidence to take control of their finances with precise, well-studied information that breaks down otherwise complex topics into manageable bites.









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When scammers targeted homeowners in the housing downturn and the recession, car loan frauds are beginning to grab the attention of watchdogs from government agencies. 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 higher car loan debt than they anticipated. Often scammers target car owners who are in need of catching up on their debts and want to avoid having their cars confiscated. These scams can be expensive, so understand the signs to watch out for. The scam of car loan Modification scams A loan modification scam is a scam designed to take your money without providing a service. Scammers for car loan modification scammers promise to lower your auto loan payment. In exchange for helping you accomplish this goal, they will charge an astronomical amount upfront. Scammers usually demand charges upfront or other unusual methods of payment. They may also pressure you into signing an agreement and often not even check on your credit report. The scammers might tell you to not make auto loan payments while they "negotiate" with your lender. It's also not uncommon for scammers to ask for more money in exchange for their"efforts" on your behalf. In some instances the scammer might require you to make payments on your car directly to them, not your lender. "The scams are similar to those of mortgage loan modifications scams with the scammers telling customers that they may be able to prevent their car from being repossessing and they can lower their monthly payments," says Gregory Ashe Senior Staff Attorney with the Bureau of Consumer Protection at the Federal Trade Commission. Possession is possible after 2 or 3 months not paying. The longer you put off making a call, the fewer alternatives you will have. "Auto lenders are not usually lowering interest rates or reducing the principal balance of a car," Ashe says. "If there is any relief to be obtained, it's generally to extend the term of the loan to decrease your monthly payments , or to delay payments that aren't made until the end period of loan. The loan will cost you more over the life of the loan, so there's no real savings -- but at least you have an opportunity to make car payments." How can you avoid
To ensure that you do not fall victim of a car loan modification scam, the FTC recommends that you do so as immediately as you can tell you are susceptible to being a victim. Also, avoid false promises of lower vehicle payments from shady companies.


Yo-yo finance scams: A person dangles a good interest rate to buyers, and then pulls it back to make the already committed buyer sign a contract with less favorable conditions. Here's how it is done. A car dealer entices the buyer to believe the financing is done that they will take a trade-in as an offer for a down payment, and then allows buyers to walk out of the dealer with a brand-new car. A few days and even weeks after, 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 usually with less favorable terms. Sometimes the dealership is already selling the trade-in vehicle which leaves the buyer to choose between higher rates or none at all. These scams typically target customers with less financing options, as they do not have . Yo-yo financing is prohibited in all states, according to Paul D. Metrey, the senior vice president of regulatory affairs at the National Automobile Dealers Association in McLean, Virginia. However, there are other forms of conditional sales and spot deliveries which are legal. They are also legal. FTC is currently working on a rule for car dealers that includes the language needed to safeguard consumers from frauds involving yo-yo loans. If the rule is adopted, it will prevent dealers from making false representations when the transaction is actually completed. How to avoid
To stay clear of a yo-yo fraud, buyers can come to the dealer with a secured credit card prior to the time. You will likely get an interest rate that is better through a bank or credit union with which your account is already open. Also, bringing in the money already secured gives you .


Negative equity scams The FTC has taken administrative action in connection with Truth in Lending Act violations regarding how those dealers handled negative equity. The dealers failed to clearly explain to customers that even though they offered the option to "pay the balance" the outstanding balance to a trade-in but they actually took that 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 the new paperwork for auto financing. "Consumers need to carefully 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 comprehend something, don't sign it." How to avoid
When you review your loan documents, you should confirm that the loan amount is what you agreed to pay. If there are additional costs, ask the finance manager at the dealership for a detailed explanation of these costs. The trade-in must be considered as a distinct transaction. If you decide to into a new loan, the dealer needs to explain what the implications of this will be for the terms of your loan.


Loan packing Dealers may induce you to purchase and from services when you purchase an automobile. They could offer an extended warranty, , tire rotation, rustproofing and service contracts. Although some of these products may be beneficial, the majority aren't. The primary goal of the dealer for this moment is get you to spend more money. Be aware that you are in no way bound to any additional items. If some options appeal to you, try to negotiate the price for the extra item just as you would discuss the price of the car itself. Be aware that when you add it to the loan you'll be paying interest on it. What can you do to stay clear of it?
Explore the options available and see what you can do yourself or get done at a shop elsewhere. You might find that you can find the services or options at less cost and of superior quality without having to wrap the costs into your loan.


The most important thing to remember is that loan modification frauds target those who have bad credit or are late on their payments. If the offer sounds too promising to be true, it's likely to be. If you're having difficulty paying your loan, the best way to resolve the issue is talk to your lender directly. The majority of lenders are willing to collaborate with you if you show that you're doing your best to keep making payments.


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Written by the writer who contributed to the article.

TJ Porter works as a contributor writer for Bankrate with over eight years of experience writing about financial matters. 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 late 2021. They are committed to helping readers feel confident to take control of their finances with clear, well-researched data that breaks complex subjects into digestible pieces.






Auto loans editor




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