5 common car loan scams and ripoffs to avoid | finder.com
Car keys being handed over a desk

5 common car loan scams to avoid

We know that everyone's situation is unique and we aim to help you find the right product for you. We may receive compensation when you visit our partners' sites or are approved for their products. You can read more about how we maintain editorial independence and how we make money here.

A guide to spotting scams and ripoffs from car loan providers.

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 loan scams in the past, but how do you spot and avoid them?

Our guide can help. We’ve outlined some of the top scams and ripoffs run by car loan providers to help you make a solid financial decision for your next car loan.

5 common car loan scams and how to 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. Here are the top five you should keep an eye out for.

1. Yo-yo financing scam

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.

However, 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 may claim that it’s already sold your trade in or it will call the police if the car isn’t returned immediately. This is yo-yo financing. You don’t have a choice to get your money back, and the dealer will continually pressure you to change your loan terms until you concede.

To avoid a yo-yo scam, or even spot financing, 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 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.

It’s a gimmick and a dirty tactic. The best thing you can do is 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 — 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. If a lender asks for money upfront, cease contact and report it. 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.

The easiest way to avoid packing payments is to 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. According to the Federal Trade Commission (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.

Avoid 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. While it will make your loan cost more over the long run, it can lower the monthly amount you owe, making it easier to handle the payments.

Common dealer ripoffs

Although not technically considered scams, some tactics dealers use can cheat you out of your money.

  • Lowballing 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.
  • Hiding problems that could cost you down the road. Some disreputable dealers will attempt to hide problems, especially if you’re buying a used car, in order 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.
  • 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 before you visit a dealership so you know where you stand financially.

Trusted car loan providers you can apply with

Rates last updated July 16th, 2018

Reveal your potential loan offers and rates

Answer two quick questions to filter the loan offers and get the best one for you.

Select your credit score range

I don't know my credit score

Finally, select where you live.

To get your credit score:

Experian logo

Experian is a leading provider of personal and business credit reporting. Find out your FICO score now for less than the cost of a cup of coffee.

Unfortunately, none of the personal loan providers offer loans for that credit score. If you are in urgent need of a small loan, you might want to consider a short term loan.
Name Product Product Description Minimum Credit Score Term of Loan Requirements
car.Loan.com Car Loans
Apply with a simple online application to get paired with a local auto lender. No credit and bad credit accepted.
300
Varies by lender
Must be at least 18 years old, a US citizen with a current US address and employed full-time or have guaranteed fixed income.
Auto Credit Express Car Loans
Get connected with an auto lender near you, even if you have bad credit.
300
Typically 3 to 6 years
Must be at least 18 years old and a current resident of the US or Canada. Must be employed full-time or have guaranteed fixed income of at least $1,500/month.
LendingClub Auto Refinancing
Lower your monthly car payments and save on interest through a fast and easy online application process.
Fair or poor credit
Minimum of 2 years
Car must be less than 10 years old with fewer than 120,000 miles. Current loan must have a balance between $5,000 and $55,000 and at least 24 months left in its term.
myAutoloan.com Car Loans
Get up to four offers in minutes through one simple application. Multiple financing types available including new cars, used cars and refinancing.
550
24 to 84 months
Must be at least 18+ years old; have a Social Security number; make $24,000+/year; have no open bankruptcies.
LendingTree Auto Loans
Compare multiple financing options for auto refinance, new car purchase, used car purchase and lease buy out.
670
Typically 1 to 7 years
Must be a US citizen and 18+ years old. Must have good to excellent credit.
Capital One Auto Financing
You could qualify for a car loan of up to 40000, but not all dealers accept this bank's financing.
Good to excellent credit
36 to 72 months
At least 18 years old, have a valid street address, have existing Capital One accounts in good standing. Car must be a 2006 model or newer with less than 120,000 miles.
Wells Fargo Auto Loans
Auto loans with high loan amounts to cover your car purchase or refinancing needs.
Good to excellent credit
1 to 6 years
Your income and assets must support your existing debt obligations and the desired loan amount.

Compare up to 4 providers

How can I avoid a car loan scam?

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 it’s willing to give you. Checking your credit score before buying a car will help you avoid dealers trying to offer you a bad loan.

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 FTC. While the Federal Trade Commission doesn’t deal with individual complaints, a complaint helps it track fraudulent companies and practices.
  • 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 three major credit bureaus. Have Experian, 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.

Bottom line

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.

Frequently asked questions

Kellye Guinan

Kellye Guinan is a writer and editor with finder.com and has years of experience in academic writing and research. Between her passion for books and her love of language, she works on creating stories and volunteering her time on worthy causes. She lives in the woods and likes to find new bug friends in between reading just a little too much nonfiction.

Was this content helpful to you? No  Yes

Ask an Expert

You are about to post a question on finder.com:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, or seek advice before you decide to act on our content. By submitting a question, you're accepting our Terms and Conditions and Privacy Policy.
Go to site