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4 min read Read Published February 28, 2023

The story was 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 writing about financial matters. TJ writes about a wide range 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 manage their finances with precise, well-studied data that has broken down complicated topics into bite-sized pieces.

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As scammers targeted homeowners during the housing downturn and the recession, car loan scams are now beginning to attract the attention of the government watchdogs. The scams vary from illegal techniques for financing that force consumers into unfavorable finance agreements, to deceptive negative equity deals that leave consumers on the hook for higher automobile loan debt than they anticipated. Many scammers target people who are in need of catching up on their payments and want to keep their vehicles from being taken away. These scams can be costly, so understand the dangers to look out for. Car loan Modification scams A loan modification scam is a scam that is designed to steal your money without offering any service. Car loan modification scams claim to reduce your auto loan payment. In the exchange for helping you reach the goal they will charge an astronomical amount up front. Scammers typically ask for fees upfront or unusual forms of payment. They might also force you to sign an agreement, and they will usually not even check the credit rating of your. The scammers may advise you to stop making auto loan payments as they «negotiate» with your lender. It’s also not uncommon for scammers to ask for additional money as they continue their alleged efforts to resolve your behalf. In some instances the scammer may ask for you to pay your car directly to them instead of your lender. «The scams are similar to those of mortgage loan change scams and the scammers claiming that they can stop their car from being repossessing and 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 can occur after just 2 or 3 months non-payment. The longer you wait to make a phone call, the less options will be available. «Auto lenders aren’t typically offering lower interest rates or decreasing the principal balance of an automobile,» Ashe says. «If you do have any relief that can be had, it’s typically to extend the length of the loan to decrease the monthly payment or delay payments that aren’t made until the finalization of the loan. You’ll pay more throughout the term of the loan but there’s no significant savingshowever at least you’re given an opportunity to make car payments.» How can you avoid

To avoid being the victim of a car loan modification scam, the FTC recommends that you do so as when you are aware that you will And ignore any too-good-to-be-true promises of lowered car payments from suspicious companies.

Yo-yo financing scams The seller dangles a good interest rate in front of the buyer, only to yank it away to make the already committed buyer sign a contract with less favorable terms. This is how it operates. A car dealer leads buyers to believe the financing is done 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 call the customer and inform them that the financing did not go through. The buyer will have to come back and sign a new agreement usually with lower terms. Sometimes, the dealer had already offered to sell the car that they traded and the buyer is forced to pick between higher prices or the car is not even available. These scams typically target customers who have fewer financing options due to the limited options they don’t have . Yo-yo financing is prohibited in every state, says Paul D. Metrey, senior vice president for 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. The 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 enacted, the rule would stop dealers from misleading consumers the fact that the transaction has been concluded. How to avoid

To avoid being a victim of a yoyo scam Buyers can go to the dealership with their credit card secured ahead of time. It is likely that you will get a better interest rate through an institution like a credit union or bank that your account is already open. Plus, walking in with the money already secured gives you .

Negative equity scams The FTC has taken administrative action for Truth in Lending Act violations concerning how dealers dealt with negative equity. The dealers did not clearly explain to customers that even though they claimed the option to «pay the balance» the balance due on a trade-in however, they actually took the negative equity and put it towards the borrower’s new car loan balance. A few customers complained that they didn’t realize that until they signed their new auto financing paperwork. «Consumers should read the paperwork before they sign it, since it doesn’t matter how it’s written. It matters what’s in writing,» Ashe says. «If you don’t understand something, don’t sign it.» What can you do to stay clear of

If you go through you loan documents, make sure to confirm that the loan amount is what you were obligated to pay. If you find additional charges Ask the finance manager at the dealership for a detailed explanation of these costs. Your trade-in should be treated as a separate purchase. Although you may choose to into an existing loan but the dealer has to make it clear how that will affect your loan.

Loan packing dealers can be able to make you feel pressured to and from services when you purchase the car. These might include extended warranties , rustproofing, tire rotation and service agreements. While some of these items are useful, the majority aren’t. The primary goal of the dealer in this instance is persuade you to pay more. However, you’re in no way bound to any additional items. If some of the options are appealing to you, you can try to negotiate the cost of the additional item just as you would bargain the cost of the car itself. Keep in mind that when it’s added to the loan you’ll have to pay an interest rate on the loan. What can you do to stay clear of it?

Research what is being offered and then see what you can do on your own or by a store elsewhere. It is possible that you can find the options or services for an affordable price and with better quality without wrapping them into the loan.

The main point is that loan modification scams target vulnerable buyers who have bad credit or have a history of late payments. If it sounds too good to be true, then it probably is. If you’re having trouble paying your loan, the best way to resolve the issue is contact your lender directly. Lenders will often be willing to collaborate with you if they can prove that you’re making an honest effort to make payments.

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Written by the writer who contributed to the article.

TJ Porter is a contributor writer for Bankrate with over eight years of experience writing about financial matters. 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 manage their finances by providing clear, well-researched data that breaks complicated topics into bite-sized pieces.

Auto loans editor

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