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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, publishing original and objective content, by enabling you to conduct research and compare information at no cost – so you can make financial choices with confidence. 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 deals that are advertised on this website come from companies that compensate us. This compensation may impact how and when products are featured on this site, including, for example, the sequence in which they appear in the listing categories, except where prohibited by law for our loan products, such as mortgages and home equity, or other home lending products. However, this compensation will have no impact on the information we provide, or the reviews appear on this website. We do not include the vast array of companies or financial offerings that could be accessible to you.
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4 minutes read. Published on February 28, 2023.
Written by TJ Porter. Written by the writer who contributed to the writing
TJ Porter is a contributing writer for Bankrate with over eight years of experience in writing about financial matters. TJ writes about a range of subjects, including .
Editor: Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate since the end of 2021. They are dedicated to helping readers gain confidence to take control of their finances with clear, well-researched data that has broken down complicated topics into bite-sized pieces.
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As scammers targeted homeowners during the recession in housing, car loan frauds are now starting to attract the attention of watchdogs from government agencies. These scams range from illegal techniques for financing that force consumers into unfavorable finance agreements, to misleading negative equity agreements that leave consumers on the hook for higher automobile loan debt than they expected. Often scammers target car owners who need to catch up on their bills and wish to keep their vehicles from being repossessed. These scams can be costly, so understand the signs to watch out for. The scam of car loan modification scams A car loan modification fraud is created to extort your cash without offering a service. Car loan modification scammers offer to lower your car loan payments. In exchange for helping you achieve the goal they charge an unfathomably high fee upfront. Scammers usually demand fees upfront or unusual forms of payment. They may also pressure you to sign an agreement and often ignore checking the credit rating of your. They may also advise you to not make auto loan payments as they «negotiate» with your lender. It’s not uncommon for scammers to ask for more money while continuing their»efforts» on your behalf. In some instances the scam firm might require you to make car payments directly to it instead of your lender. «The scams are similar to mortgage loan change scams and the scammers telling victims that they could prevent their car from being repossessing and they can reduce their monthly payments,» says Gregory Ashe is a senior attorney in the Bureau of Consumer Protection at the Federal Trade Commission. Possession is possible after two or three months of inability to pay. The longer you put off making a make a phone call, the less options you have. «Auto lenders are not typically lowering interest rates or reducing the principal balance on the car,» Ashe says. «If you do have any relief that can be obtained, it’s generally to extend the duration of the loan to decrease your monthly payments or to defer missing payments to the close of the loan. The loan will cost you more over the life of the loan and there’s no real savings — but at least you’re given the chance to pay for your car payment.» How can you avoid
To ensure that you do not fall victims of car loan modification fraud To avoid being a victim of a scam, the FTC recommends as when you are aware that you are susceptible to being a victim. Also, avoid too-good-to-be-true promises of lowered car payments from suspicious companies.
Yo-yo finance scams: A person offers a favorable interest rate in front of the buyer, only to yank it back to make the already committed buyer sign a contract with less favorable terms. Here’s how it is done. A car dealer entices a buyer to believe that the financing is final and will accept a trade-in or a down payment and allows buyers to walk out of the dealer with a new car. Some days or even weeks later, the dealer will contact the buyer and say the financing was not able to be completed. The buyer must come back and sign a new contract usually with less favorable conditions. Sometimes, the dealership is already selling the vehicle that was traded in, leaving the buyer to select between higher rates or no car at all. These scams usually target people with fewer financing options because they do not have . Yo-yo financing is prohibited in all states, according to Paul D. Metrey, executive vice president for regulatory affairs at the National Automobile Dealers Association in McLean, Virginia. However, there are other forms of spots and sales with conditional terms that are completely legal. The FTC is currently writing a regulation for car dealers that includes the language needed to safeguard consumers from the yo-yo finance traps. If enacted, the rule will prevent dealers from making false representations what the transaction actually completed. What are the best ways to stay clear of
To stay clear of a yo-yo fraud Buyers can go to the dealership with secured prior to the time. It is likely that you will get an interest rate that is better through a bank or credit union with which your account is already open. Additionally, coming in with financing already locked down can give you .
Negative equity scams The FTC has taken administrative action to address Truth in Lending Act violations concerning how dealers dealt with negative equity. The dealers failed to clearly explain to consumers that though they claimed to «pay off» the outstanding balance through a trade-in transaction but they actually took that negative equity and put it towards the borrower’s new car loan balance. Many customers complained that they did not know this until they signed their new auto financing documents. «Consumers must go through the document before signing 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 to avoid
After reviewing your loan documents, check 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 them to you. Your trade-in is treated as a separate purchase. While you can choose to into an existing loan but the dealer has to be clear about how this affects the loan.
Loan packing dealers can induce you to purchase and services when you buy a car. These might include extended warranties , tire rotation, rustproofing and service contracts. Although some of these products may be beneficial, the majority are not. The primary goal of the dealer in this instance is get customers to spend more. However, you’re in no way bound to any extras. If some of the options are appealing to you, you can try to negotiate the cost of the additional product just like you negotiate the price of the car itself. Remember, when it’s added to the loan you’ll have to pay interest on it. How can you avoid it?
Explore the options available and then see what you can do on your own or in a different shop. You may find that you can purchase the products or services at a lower price and higher quality, without incorporating the costs into the loan.
The bottom line Car loan modification scams target vulnerable buyers who have poor credit or who have a history of late payments. But if it seems too good to be true, it’s probably true. If you’re having difficulty paying your loan, the best way to resolve the issue is contact your lender directly. Most lenders will be willing to work with you if they can prove that you’re taking a genuine effort to make payments.
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Written by Contributing writer
TJ Porter is a contributor writer for Bankrate with eight years of experience in writing about financial matters. TJ writes about a range 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 to control their finances with precise, well-studied facts that break down complex subjects into digestible pieces.
Auto loans editor
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