Top 7 Car Loan Scams
Tips For Financing a Car: Avoid These Scams
Shopping for a new or used car can be a fun and exciting experience, but it should also be done with vigilance and careful attention to detail. Before you sign on the dotted line, make sure you know exactly what you’re getting and how much you’ll be paying. Read the agreement carefully, understand what you’ll be paying for, and how often you’ll be charged.
If you feel like you’re being offered suspicious products or are being charged a hefty amount for your car loan approval, take a step back and walk. There are dealerships out there who are looking for unsuspecting customers to take advantage of – don’t be one of them.
Here are the top seven car loan scams you should keep an eye out for next time you’re in the market for a new vehicle:
1. The Yo-Yo Scam
The Yo-Yo Scam is very common and happens in every city, including – most likely – in yours. Let’s take a look at an example.
Watch the video below to see the Yo-Yo scam exposed:
As you can see in the video above, people who fall prey to this scam are unsuspecting shoppers who find themselves the owner of a new vehicle before a loan has been fully negotiated and approved by a legitimate lender. The client will be allowed to drive away with their new purchase before payment has been processed and completed.
The scam occurs when the dealership calls the client back in to renegotiate the terms of the loan, and at a higher price. If you fail to return the car and, they might come after you with threats and may even try to have you arrested for auto theft.
Never drive away from the lot in a new car until your loan has been approved and it’s been proven that you’ll be able to pay. Make sure the paperwork clearly states that the loan is “subject to approval” to your advantage.
2. Upfront Fees
Upfront fees are an upfront no-no. Lenders may encourage or coerce clients to pay a fee in order to process the application or to distribute funds. This is a tactic used to get your money now.
Chances are, if you pay, you’ll never hear or see the lender again. Walk away as soon as you’re being asked to pay upfront fees. Also, be careful – to lure you in, they advertise the financing as Bad Credit Car Loans.
3. Guaranteed Approval
There is never any such thing as ‘guaranteed approval’, but many auto dealers will use this tactic to entice buyers. They say they’ll run your credit and you’ll likely be approved but on outrageous terms.
Clients with low credit scores may be particularly enticed by this scam if they think they won’t be approved for a loan anywhere else, but the false terms they’re agreeing to, such as low monthly payments or interest rates, are anything but.
Never walk into a dealership on the promise of ‘guaranteed approval.’
4. Auto Loan Modification
The auto loan modification scams occur only after a loan has been finalized, and when the client is struggling to make their regular payments. They may seek relief by turning to businesses that claim they will re-negotiate the terms of the loan for a small upfront fee. The client may then be told that they can stop paying their loan because the company is now taking care of negotiations.
This never happens, and the victim can’t get in contact with the company after paying for the service.
Stay away from companies that claim to modify your loan. If you’re struggling with payments, contact your lender directly and explain your situation. Many are willing to defer payments or extend your loan term.
If you’re also on the market for a home, keep these scams in mind. Loan modification scams are particularly common with mortgages as well. Whether you’re buying a car or a home, be wary of advanced fees.
5. Defer Car Payment
Some questionable dealers (a few, dar they do exist) may convince you to buy the car committing to help with the financing. How? By promising in their ads things like: “No payments for 6 months”. How does the Defer Car Payment Scam work?
A couple of weeks after you purchase the vehicle, you receive a letter from the dealership. It says the first payment is due. Calling immediately to dispute the letter, they say the promotion was only available for the week previous to the one when you signed.
6. Packing Payments
Packing payments change the price you pay for your loan by adding on extra and often unnecessary costs to your monthly payment. While it may only look like a few extra dollars every month, it comes to thousands of dollars over several years.
Make sure you focus on the actual prices of the car, and not your monthly bill.
7. Mandatory Warranty
While you’re enjoying the last few minutes of the contract signing, the dealer is mentioning a mandatory warranty that is not included in the price. What this really means is the $2,200 warranty is included in the invoice’s total, even though it’s not part of the car’s value. They may even tell you the warranty is required to get the loan. This is not the case. If you don’t want the warranty, it is your right to decline it.
Stay away from all these seven scams. If you are looking for online sources for a car loan use only reputable companies such as Web2Carz or Auto YES, both offering free quotes. According to online reviews they are some of the best agencies out there, with services in the United States and Canada.
Other Dealership Deceptive Practices
Here are some other questionable tactics dealers may use to cheat you out of your money. Watch the video below to see some deceptive practices that dealers use:
Essentially, here are a few points to take away and some tricks to avoid:
- Credit score. A dealer may try to tell you your credit score is lower than it actually is in an attempt to offer you a high-interest rate. Check your credit before you visit a dealership so you know where you stand financially. The best way to avoid being ripped off by them is to know your credit score and by arranging your own financing. Equifax and TransUnion can be excellent resources to start with.
- Title washing . Some dealers transport cars with a salvage title to a different state that doesn’t recognize that brand. You can make sure that your used car isn’t worthless by looking at its record online.
- Mechanical issues. Some disreputable dealers will intentionally choose not to disclose certain mechanical problems with the car so they can maintain the value and sell it to you at a higher price. Make sure you get the car inspected by a mechanic before finalizing any purchase.
Know the Signs of a Fraud
It is not uncommon that many victims start wondering in time if they’ve been scammed. Maybe you are one of them. What are the signs? Well, you might be a victim of a scam in one of the following situations:
- You can’t connect with the dealer. This is available for those who sell cars online, not necessary for dealerships where you can go. However, scammers often provide fake contact information so you can’t reach out. Or don’t answer the calls.
- Blank spaces on contract. Do you remember if there were any blank spots on the contract? Sometimes scammers offer contracts with wide blank spaces so that they can fill it in with terms and conditions you would never agree to.
- Paying more. Make sure your payment bills match your original loan documents.
- Bullying treatment. There were reported cases when lenders threatened the buyers with lawsuits or even jail time, as a bluff to cover up a scam.
Car Buying Scams: How To Report a Scammer
Warn your family and friends about these car buying scams by sharing this article on social media using the buttons provided. You can also officially report the scammers to the Federal Trade Commission using the link below:
You can also report the scammers to the Consumer Financial Protection Bureau. The CFPB also collects complaints against lenders and can work to resolve the issue.
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