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There are plenty of reputable dealers out there that want to make a profit but still care about their customers — and then there are those who are simply trying to make a quick buck at the customer’s expense. You’ve likely heard about car buying scams in the past, but how do you spot and avoid them?
Scams can be run by dealers or by independent lenders. They can be as simple as bad terms or complex like charging too much in fees — issues addressed by the Federal Trade Commission (FTC). Here are the top five you should keep an eye out for.
Spot financing 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.
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 this scam? 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.
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 — this is 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.
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.
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. According to the FTC, victims of loan modification 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.
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
Although not technically considered scams, some tactics dealers use can cheat you out of your money.
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.
You might be a victim of a scam in one of the following situations:
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:
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 two 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.
Your best defense 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 guide to car loans can help you navigate the buying process and find a lender that can get you the financing you need.
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