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According to the Canadian Anti-Fraud Centre, Canadians lost $531 million to fraud in 2022 and $133.7 million so far in 2023. With so many car loan options on the market, how can you tell if a provider is legitimate?
As a starting point, you can check out the list of providers below with our reasons for why they’re legitimate. Plus, learn about common car loan schemes and how to avoid them.
Which car loan providers are legit?
Car loan provider
Key features
How it’s legit
CarsFast allows you to pre-qualify for loans from multiple lenders and compare your rates. You can apply with bad credit.
Canada Car Loans has streamlined vehicle financing for customers. Choose a vehicle from a large inventory and get matched with a lender to get financing.
Interest rates: 1.99% - 34.99%
It’s registered in Nova Scotia’s official business database.
Auto Loan Providers is an Ontario-only lender lets you choose a vehicle type first, then helps you determine how much loan you can afford before car shopping.
Interest rates: 0% - 47.00%
It is an offshoot of Automobile Finance Centre, which has been in business in the last 20+ years.
We’re not signing off on its legitimacy. We like that it has a privacy policy and terms and conditions; however, Canada Car Program does not have an office address or phone number on its website, and the website itself is underdeveloped. We also don’t like that it says you’ll get approved regardless of your credit. Finally, we did not find it in the Alberta or Ontario business registries. Compare legitimate alternatives.
Information above is as of January 20, 2023.
We’re not signing off on its legitimacy. We like that it provides a phone number, email address and privacy policy; however, Autofix Credit does not provide its office address or terms and conditions, and the website is underdeveloped. We also did not find it in the Ontario business registry. Compare legitimate alternatives.
Information above is as of January 20, 2023.
Yes, LendingArch is a legitimate company. It’s owned by Consumer Genius Inc., which also owns other loan brands like CarsFast and Loanz.
Yes, Rifco National Auto Finance is a well established non-chartered bank in Canada offering non-prime auto financing since 2002. It provides car loans in all provinces except Quebec.
Yes. Car Loans Canada works with a large network of lenders that includes financial institutions like Bank of Montreal, Royal Bank, Scotia Bank, TD, CIBC, National Bank, Desjardins and more. Car Loans Canada has over 200 employees and has been in business since 2002.
6 common car loan scams
Some dealerships or sketchy car loan providers are just interested making money, even if it’s at your expense. If you’re not working with one of our trusted providers listed in the table above, keep an eye out for these car loan scams.
1. Yo-yo financing and spot delivery scams
Yo-yo financing (or spot delivery scam) is a tactic used by many dealers to get you into a new car and off the lot the same day you walk in — whether your loan is approved or not. If the dealer can’t sell your loan off for a profit, you’ll be informed that the financing has fallen through. You’ll either need to renegotiate your terms or return the car.
If you’ve settled on a monthly payment plan of $250, the dealer may call you up after a week and tell you that you’ll need to pay $350 in order to get financed, otherwise your new car will be repossessed. The dealer might claim that it’s already sold your trade in or it will call the police if the car isn’t returned immediately.
How to avoid it: Look for language in your contract that says your loan is subject to approval. A dealer shouldn’t allow you to drive off the lot until it knows you’ll be able to pay.
2. Guaranteed approval
As with other types of loans, there’s no such thing as guaranteed approval, but many dealers will use this to get buyers on the lot. They’ll run your credit, and chances are you’ll be approved — for outrageous terms.
Why do dealers run these car loan scams? There’s a chance that a buyer has decent credit for a loan at a moderate, yet affordable rate. And some borrowers may need a car regardless of the terms they’re offered.
How to avoid it: Steer clear of any dealership that offers a guaranteed approval.
3. Upfront fees
No matter if you get your financing through a dealer or an independent lender, upfront fees are a bad sign. Lenders may encourage or coerce borrowers to pay a fee before the application is processed or before the funds are distributed. Don’t be fooled — these car loan scams are an attempt to get you to pay, regardless if you get the loan or not.
Upfront fee scams typically happen online where you can get lured into paying the fee and then never hear from the lender again.
How to avoid it: Cease contact and report any lender that asks for fees upfront. Reputable lenders won’t ask for any fees before you sign a contract.
4. Packing payments
Some call it a scam, some may just see it as a dealer trying to rip you off, but either way, packing payments change the price you pay for your loan.
A dealer encourages a buyer to focus on the monthly payment, not the total cost of the vehicle, and then packs on unnecessary extras that only change the monthly payment by $10 or $20. Over the life of a multi-year loan, however, that $10 or $20 becomes thousands of dollars.
How to avoid it: Keep the focus on the price of the car, not how much you’re paying per month. Keep this in mind, and the salesperson will have no room to tack on extras.
5. Loan modification scams
A loan modification scam happens after a buyer takes out a loan and struggles to make payments. Seeking relief, you may turn to businesses that claim to negotiate with the lender for a small upfront fee, usually a few hundred dollars.
As with most things, if it sounds too good to be true, it likely is. Victims of loan modification car loan scams are often told to stop making payments to their lender because the loan modification company is going to take care of negotiations. This never happens, and the victim can’t get in contact with the company after paying for the service.
How to avoid it: 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.
6. Cosigner scam
If a borrower doesn’t qualify for financing on their own, a dealership may suggest they get a friend or family member to cosign the loan agreement. Getting a cosigner for a loan is a legitimate practice, but the scam happens when the dealership removes the original buyer from the contract, and the cosigner is on the hook to make all the payments as the primary borrower. They do this by making the original buyer and the cosigner sign multiple sets of paperwork.
How to avoid it: Carefully review the fine print of everything you sign and never sign contracts separately.
Car buying scams sometimes work a lot like mortgage scams
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, according to the FTC. Whether you’re buying a car or a home, be wary of advanced fees
More common dealership car-buying scams
Although not technically considered car loan scams, some tactics dealers use can cheat you out of your money.
Low-balling the value of your trade-in. Dealers are trying to make a profit, but that doesn’t mean you should settle for a bad offer. You can visit multiple dealers to see what they’ll pay for your old car so you can be sure the dealer you choose is giving you a good price. You can also use multiple offers to negotiate better deals among competing dealers.
Hiding problems that could cost you down the road. Some disreputable dealers will attempt to hide problems to sell you the car at a higher price. Have your purchase dependent on an inspection by a mechanic to avoid being fooled by a good paint job. Also, make sure you get a vehicle history report from a reputable company like CARFAX or AutoCheck.com to study your vehicle’s maintenance history, accident records and ownership status.
Title washing. Some dealers transport salvaged vehicles to a different province that doesn’t recognize that brand. You can make sure that your used car isn’t worthless by looking at its record online. Viewing a vehicle’s history can save you lots of money down the road and help you avoid buying a lemon.
Implying your credit score is low. 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 with companies like Experian, Equifax or TransUnion before you visit a dealership so you know where you stand financially.
A reliable way to avoid being scammed or ripped off by a dealer is to arrange your own financing and to know your credit score.
Arrange your financing. Browse our guide on car loans before visiting a dealership to get your financing in order — it gives you more negotiating power and could help you lower the cost of your purchase.
Know your credit score. Your credit score will influence how much a lender will let you borrow and the interest rate you can get. Checking your credit score before buying a car will help you avoid dealers trying to offer you a bad loan.
How do I know if I’m the victim of a scam?
You might be a victim of car loan scams in one of the following situations:
You’re paying more than you were told. If your original loan documents don’t match up with what you’re being charged, you could be a victim of a scam.
You paid for something you didn’t receive. Another common sign you’re being scammed is if you paid for a service or product upfront before the lender all but vanished.
You’re being threatened. Lenders that threaten you with a lawsuit or even jail time might be covering up a scam. If you’re afraid of what your lender might do, do some investigating — it might be illegal.
You can’t get in touch. Scammers often provide fake contact information so you can’t reach out.
There were blank spaces on your contract. Sometimes scammers offer contracts with wide blank spaces that they can fill it in with terms and conditions you would never agree to.
What to do if you’ve been scammed
It’s always best to educate yourself and avoid a scam altogether. However, if you think you’ve been the victim of a scam, you have a few options:
Report it to the Canadian Anti-Fraud Centre. The centre is run by the Ontario Provincial Police, the RCMP and the Competition Bureau. File a report easily online or by phone.
Contact your bank or credit union. This may be a necessary step, especially if you’ve fallen for a loan modification scam. Make sure your bank or credit union locks your account to prevent withdrawals.
Contact the major credit bureaus. Have TransUnion and Equifax issue a fraud alert for your credit reports. This helps prevent any new credit accounts being opened in your name.
Change your passwords. If you applied for a car loan online and later found it was a scam, change your passwords for all your important financial accounts.
File a report with the police. A local dealership running scams needs to be reported to the police so that they can be held accountable for their harmful practices.
Contact politicians. Enough complaints from consumers can also lead to an overhaul of local and even federal regulations.
Can I sue a lender over a scam?
Possibly, if your lender has clearly broken the law. Reach out to a lawyer for a consultation to find out if you have a case.
Generally, you have 2 options when it comes to law suits: You can either join other victims in a class-action lawsuit or sue on your own. If you decide to go solo, be prepared for some steep legal fees.
Bottom line
Your best defence against scams is knowing what to look for before visiting a dealership. Many common dealer scams target buyers with poor or bad credit scores, but that doesn’t mean you have to settle. Our comparison of the best car loans in Canada can help you sift through your options and find the best deal for you.
Frequently asked questions about car loan scams
Dealerships make money by selling your loan to a bank or financing company and splitting the profit made off of interest. This is why dealership financing might come with higher interests rate outside lenders – after giving the bank its share, dealerships will markup the interest rate slightly to make a profit.
You can sometimes get better deals with dealership financing, but these rates might only be offered to customers with excellent credit or might only be available when bundled with other, less advantageous terms (like having to make extended interest payments over a longer repayment period). Be aware of great promotional interest rates that revert to higher rates after a specific time.
Provided the dealer has put wording similar to "conditional" or "subject to loan approval" in your contract, then yes, it is legal for a dealer to take back your car and cancel the contract within a certain period after buying.
Absolutely. In fact, having a lawyer look over your car loan is one thing you can do to protect yourself against a scam. Some dealers may try to pressure you to sign right away, but this is just another tactic to get you to buy quickly. Taking out a loan to buy a car is an important decision – take as much time as you need to think it over, and don't let a dealer rush you.
There are several ways to get out of a bad car loan, from refinancing with a new lender to moving your debt to a balance transfer credit card. You can learn more about your options with our guide to getting out of a bad car loan.
It might be, though many car ads feature deceptively low prices that are difficult to qualify for just to get you in the door. The easiest way to know if the price you see in an ad is real is to contact the dealership or manufacturer directly.
Carmen Chai is a freelance writer at Finder, specializing in financial products. She is an award-winning Canadian journalist who has lived and reported from major cities such as Vancouver, Toronto, London and Paris. She has reported on personal finance, mortgages, and banking products for nearly a decade.
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