AUTO LOAN RIP-OFFS AND HOW TO AVOID THEM
Do you have bad credit? Know that there are several auto lenders in
the industry that take advantage of borrowers like you. They know
you are desperately seeking for an auto loan and they will lure you
into their schemes so that they can make more money. Don’t allow
these lenders to rip you off by getting familiar with their ploys
and knowing how to avoid them.
1) Yo-Yo Financing (a.k.a. Spot Delivery Scam)
One of the most common auto financing scams is yo-yo financing or
spot delivery scam. It is usually pulled on borrowers with bad
credit. It works this way:
The dealership will ask you to sign some papers as they make you
think that financing has been approved. You will be able to drive
the car home after signing those papers. But after a few days or
weeks, the dealership will call you back to tell you that the
financing fell through and you need to visit them again for another
deal. The thing is they will finance you at a higher interest rate.
And according to the Center for Responsible Lending, majority of
victims lost to unscrupulous dealers and ended up carrying a more
How to Avoid:
You can avoid this scam by thoroughly
going over the paperwork before signing on the dotted line. Make
sure the agreement on the financing aspect of the deal is final
before taking the car home. You can also arrange financing with a
before walking into any dealership.
2) 0% Financing
Zero-percent financing deals are great-only when they come directly
from auto manufacturers. But there are some dealerships that pretend
to offer zero-percent car financing. The only way dealers can push
down the interest rate to zero is to offset the interest cost they’d
pay directly to the lender and adding that amount onto the vehicle’s
price. Car buyers don’t usually know this and just agree to the
How to Avoid:
The only reliable 0% financing offers come from
manufacturers. If a dealer tells you that you qualify for the
no-interest financing only for a certain vehicle price, it is most
likely a scam. Avoid this scam by negotiating the car price first
and then the financing. Never negotiate the two simultaneously.
3) Bad Credit Claim
Another thing unscrupulous dealers usually do is lie about your
credit score. They’d tell you that you’ve got a low credit score and
you can’t qualify for a low interest rate. If you agree, your auto
loan will carry an interest rate higher than what you actually
deserve and the dealer will earn more money.
How to Avoid:
At least 6 months before applying for an auto loan,
check your credit score and get a copy of your credit report. The
credit score lie scam will not work for you if you are armed with
You can access your credit score for free through several websites.
But these scores give you only a general idea of the interest rate
you’ll most likely get. Experts suggest purchasing your FICO score
if you’re looking to take out a mortgage or an auto loan. Paid
scores give you a more accurate estimate. In addition, you can get a
free copy of your credit report through
, which is
operated by major credit-reporting bureaus in the U.S.