Watch Out for Car Financing Scams
In the midst of a down economy and contracting credit scores, a new industry flourished in the form of car financing scams. Taking advantage of people in distressed financial situation, unscrupulous lenders and scammers have developed ways to entice and trap them into off-market financing deals that are extremely costly at best, and outright scams at worst. If you are unable to qualify for an auto loan through regular channels, you definitely should avoid any type of financing that smells like the following:
Buy Here, Pay Here Dealers: These dealers know that their buyer prospects can’t otherwise qualify for a car loan, so, they entice them with easy financing. In doing so, they also mark up their prices significantly. In most cases, the dealer requires that the payments be delivered to the lot each month, and, because nearly a third of these buyers can’t maintain the stiff payments, the dealer profits even further by repossessing the car and reselling it.
Yo-Yo Loans: You can be victimized by this scam even with a “legitimate” car dealer. It generally targets people with poor to fair credit who are most likely to accept whatever terms a dealer is willing to give them. When a deal has been made on a car purchase, the finance person sees that your credit is questionable; yet, you are still allowed to drive off the lot with the car. Why? Because he knows that the final terms of the purchase are not final until the loan is approved, and he has your down payment and/or trade-in. A couple of days later you receive a call from the dealer telling you that your loan application was declined and you are asked to either return the car or sign a new loan document with less favorable terms, i.e. higher interest rate. If you choose to return the car, chances are you won’t get back your down payment or your trade-in.
Loan/Lease Payoff Offer: This is very common offer made by dealers of all types. They will pay off your loan or lease “no matter how much you owe.” At first blush it seems like a very generous offer; however, it is nothing more than a manipulation of the numbers that makes it appear that your current loan disappears. In reality they have simply rolled your loan balance into a new loan. Because the new loan is amortized over five or six years, it’s hard to notice; however, in most cases, buyers drive off the lot already upside down in their new car loan.