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Are you prepared when you go into a dealership to buy that new car? Although there are many reputable dealerships that offer good car loans, there are also a few less than honest ones as well. Here’s what you need to know about car loan scams.


Spot Delivery Scams

Cars are sold “on the spot,” given to the consumer to drive away before the loan approval is completed, causing embarrassment if the loan is denied and the car must be returned.

Another version of this is called “yo-yo financing,” usually targeting consumers with poor credit. The unscrupulous dealer tells you your funding was denied and you’ll have to pay a higher interest rate, additional fees or more money down.

Learn your state’s laws regarding requirements of dealerships in the event they are unable to get the financing approved at the rate offered to you in the contract. If your loan is denied, ask for a copy of the denial letter from the dealer. You may wonder why it's important to work with a trusted dealer. The reason is a good dealership will let you know if your financing is only in the temporary approval stage so you will be prepared if the loan is denied. Consider getting a less expensive pre-owned car until your credit score improves.

Four-Square Car Auto Loan Scams

In this scam, a dealer can confuse you into paying more than is necessary. The dealer gives you a page with four squares on it, asking for your signature. The four squares show: the car’s price, down payment, the monthly payment and trade-in value of your existing car. You may fail to notice the terms of your payment, and it distracts you from the actual car price and the lower trade-in amount offered.

Research the car’s value in advance. Bring a calculator with you to ensure the total amount you will end up paying makes sense in regard to the value of the vehicle.


Low Credit Score Car Scams

When you have a low credit score, a dishonest dealer may try the following:

  • Extremely high interest rate
  • Charging extras, such as extended warranty or extra insurance
  • Dishonest about your actual credit score

Obtain your credit score before you shop using one of the many online websites that provide your credit score free of charge. Don’t fall into the trap of agreeing to loans with terms over 60 months, since you will pay excessive interest. Be willing to shop for a lower priced car.

Low Payment Car Scams

If you are having trouble making your car payments, don’t be taken in by companies that say they can work with your lender to lower your monthly payment. These companies usually ask for a fee up front, then never come through with what they promised. If you find it difficult to make your car payment, call your lender directly to find out your options instead of falling for auto loan scams.

The best way in how to avoid auto loan scams is to be prepared and stay informed. If something sounds too good to be true, it usually is.

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Bill DeBoer

Written by Bill DeBoer

William J. DeBoer (Bill Jr.) is Co-owner and Vice President at DeBoer’s Auto. As the company’s General Manager, Bill has been responsible for bringing innovations in daily operations to the full-service, high-tech auto repair facility for 20+ years. Passionate about computers from an early age, Bill’s interest in technology gravitated to cars while he was in college. By obtaining a Certificate in Automotive Technology followed by a B.S. in Business Management from Penn State, Bill was able to fuse his interests into a car technology specialization and join the family business shortly thereafter.