It is a well-known fact by all and sundry that the auto loan business has risks, but there may be more to it out there than what you initially think. The risks involved are always almost the processes in thrashing out a car loan for a credit score that is low and how quickly it is to get stuck with its enormous interest rates. Things like this are what you should initially look out for, but something more severe than this that can hurt all people irrespective of the credit type situations is the auto financing scam. It targets the same audience for the most part.
A lot of renowned dealers out there make profits but still have the considerations of their customers at heart, and then those who only try to do a quick one on unnoticing customers and make a fast buck from them are around also. I guess you have heard about car loan scams in the past, but how do you identify and avoid them?
Car Loans of America have drafted some of the top scams perpetrated by car loan providers and explain some of the ways to enlighten and help you make an informed financial decision for the next car loan you will take.
Independent lenders or dealers can run a scam. It ranges from astronomical charges to bad terms or failed promises.
Here are some of the things you should watch out for:
Yo-yo financing scam:
Spot financing is a gimmick used by a lot of car loan dealers to get you a new car and take it back the same day whether your loan is successful or not. If the dealer thinks he can’t make money off your mortgage, you will be notified that the financing has hit the wall. The option always available is to arrive at a new arrangement or return the car.
However, if you arrived at a price initially, the dealer may ring you up after two weeks and notify you of a change in the agreed paying pattern; otherwise, your new car will have to be forfeited. They may even go a step further by threatening you that you will be reported to the police if you don’t return the car. It is known as yo-yo financing. You don’t have much of a choice than to collect your money back or accept his plans to inflate the loan arrangement.
To stay clear of the yo-yo scam, it is advisable to search in your contract that indicates the loan is subject to approval. A dealer should never have allowed you in the first place to drive off the car until he is sure and convinced you would be able to pay.
Like other types of loans. There is nothing like guaranteed approval, but a lot of dealers use this to get buyers on their scammed list. They will process your credit and increase your chances of getting approved, for exorbitant terms. The reason most dealers run this scam is that the intending buyers already made up his mind to buy a car at a moderate and often affordable car loan interest rate. And even some borrowers may require a vehicle irrespective of the price offered.
It’s a dirty trick. The best thing you can do as a loan buyer is staying clear of any dealership that offers you guaranteed approval.
No matter the conditions of your financing, the upfront fee is a red flag and a terrible sign. Lenders mostly force or influence buyers to make an upfront payment before their application is processed. Don’t fall for it; it is a calculated attempt to get you to pay them whether you end up getting the loan or not.
The upfront fee usually happens every day on the online space where you are cajoled into paying the price and then you never a word from the lender again. The moment a lender requests payment from you upfront, you are advised to stop negotiations, contact and report to the appropriate authority. Trusted car lenders won’t ask for any fees in advance before you sign the contract.
Some people see it as a scam, others just view it as a dealer trying to cheat you, but anyways, packing payments is a change to the original price of your loan. A dealer implores a buyer to focus on the monthly servicing of the loan fee, not the total credit, and then add on unaccountable extras that only increase the monthly payment by either $10 0r $20.
Over the duration of a multi-year loan, that could amount to thousands of dollars.
The easiest way to be clear of packing payments is to place focus on the car, not the amount you are paying at the end of each month. Have this in mind, and the dealer will have no excuse for adding extra charges.
Loan modification scams:
A loan change or modification scam occurs after a buyer takes a loan and finds it hard to make payments. To find assistance, you may look towards businesses that claim to enter into a negotiation with the lender for a small upfront fee, usually a few hundred bucks.
Like most things, it sounds too good to ignore.
Always stay away from firms that promise to take care of your second chance auto loan. If you have a problem with paying back your mortgage, call your dealer directly and explain the situation of things. Some are ready to defer payments or extend the terms of the loan though it will make the cost of the borrowing to be increased over a period. It can reduce the monthly amount you have to pay to make the payment now easier.
Lowballing the value of your trade-in:
Dealers always try to make a profit, but it shouldn’t mean you should just allow any auto loan offer. You can check out many dealers to see whether they are ready to pay for your old cars so you can know whether your dealer is fair to you with the price and car loan interest rate.
Hiding problems that could cost you down the road:
Some bad dealers will try to hide pitfalls like high mileage, especially if you’re buying an already used car, to sell the car at a much higher price. Make your purchase dependent on a routine inspection from a mechanic to avoid being scammed by a cool paint work done on the car.
Saying your credit score is low:
A dealer may also try to tell you to have bad credit loan review or your credit score is smaller than it is in a way to suggest a higher interest rate. Go through your credit before visiting a dealer, so you know where you stand financially.
Know the actual price of the vehicle:
Scammers always use a meager amount to attract unsuspecting victims. If the cost of the car is too low to be true, then you should ask for the reason why it’s like that. If there’s no valid explanation for it, or if something is not right about it, it may be advisable to walk away and check another dealer. Remember, there are always a lot of cars out there that will fit you without any drama.
Verify the seller’s and the car’s identity:
Always make sure the identity card presented to you is a government-issued ID, like a driver’s license or social security number. Make sure the seller’s private details and names match those on the vehicle registration form.
Compare the documents presented on paper to the car parked. Check well for evidence tampering.
Never use wire transfers for payments:
Real car sellers never advocate for wire transfers. If the seller is private and insists on a wire transfer. Tell them to suggest an alternative to western union or Money Gram, preferably one with another proof of identification is more comfortable.
The established Scammers love making use of wire transfers because these services often have soft application processes, making them very hard to trace. Once the money disappears, you will find it very difficult to locate or recover.
Take the vehicle for a pre-purchase inspection:
When you have the opportunity to check out the car, do this thoroughly and make sure everything is working correctly. The real owner of the vehicle should know in advance any fault of the car and the areas that are not in perfect working conditions. The moment he looks surprised because of a part looks bad or not working well; you should start being careful. Arrange for a freelance mechanic to inspect the vehicle thoroughly. When test driving the car, use a minimum of 15-30 minutes to approximate how well the car moves. Offer to pay the gas fee if it demands that.
Use anti-stolen car tools:
You may even hold the keys to the car in your hand and have all necessary documents stating you are now the new owner of the vehicle, but none actually matters or confirms the car now belongs to you. In a situation the vehicle is stolen, it belongs to the previous owner technically. To check out whether a vehicle is stolen or not, simply send a text with the plate number to the Land Transportation Office (LTO). After this, confirmation of the details of the vehicle will be sent to you.
It is not very common, but it has a very high potential profit avenue for the dealer if you are not smart and prepared to tackle it.
They join two or more loans in one place to make sure someone with bad credit always get a loan. Normally, someone with bad credit doesn’t stand a chance of accessing an auto loan with it, but when the loan is repackaged with others who have excellent credit, the finance firm accepts them.
To someone with bad credit, it is a great service, but the reality is that they will be coercing them indirectly to pay a higher auto loan interest.
The main aim of this in a simple way is to ensure you get your financing worked out before going to the dealer, if car loan shoppers pay utmost attention to this part, it will end up saving them thousands they can use to do something more productive and also save them from the heartbreak of being scammed.
Taking undue Advantage of the Fees and durations
To them, giving out inflating loan rate is not enough; most dealers will suggest loans with the highest profit potential to them other than the one that will give you the best auto loan interest rates.
For example, your loan application may be accepted by different lenders, but each will have a contrasting auto loan interest rates.
Assuming the lowest rate you are eligible for is 5%, but the lender wants the auto loan dealer to pay a high acquisition fee, or probably have a finance markup limit of 1%.
Let’s take another look at another lender with a high auto loan interest rate,i.e. 6%. But the lender allows only gives 2% together with a reduced acquisition fee for the dealer. Which one do you think you will be presented to you between the two?
Always have it at the back of your mind that the dealer is under no duty to give you the best auto loan rate, they are there to make sure they make more money as much as they want from you. The only avenue to put a stop to this is for you not to shop around before meeting the dealer.
Spot Delivery Scam
This is a situation in which the dealer arranges a loan financing, let you drive the car home and then call back days later to tell you the loan fell through, and you should return the car.
When you take the car back, they will exert pressure on you to sign a loan with a much higher loan rate, higher down payment, or in some cases, both. Anyway, it ends; it is a sure thing you are paying more than necessary and the dealer feeds fat off you.
Although there are some cases of legitimate auto loan financing going south, it is a very rare case, and normally, no car dealer will allow you to take the car home in the first place without being sure your loan application will be approved. If you submitted a bad credit application, and this delivery is suggested for you, you can be sure it’s a scam waiting to happen.
To avoid this, you are advised not to place all your hopes on one dealer; you should rather look for a dealer with your best interest at heart.