Top 6 Car Loan Scams

This is a very short list of the possible loan scams and car finance tricks that you may hear from an auto finance manager or salesperson. Be prepared, the person handling the vehicle paperwork, is also a salesperson. They may seem like a paper-pusher or like a banker. However, when you are sitting in the Finance Manager's office, you are sitting in the office where they have the opportunity to make some serious money off of you. If you have your Credit Score and apply for Auto Loans before you discuss dealer financing, you’ll be prepared for these car finance tricks.

Auto Loan Scam #1:“Your credit score came in low”

You are sitting in the auto finance manager’s office and he comes in with a sad look on his face. “I just ran your credit report and your credit score came in lower than the requirements for our advertised financing. We can still offer you a loan. However, the rate will be 12.9%.”

If you order all of your credit reports & credit scores on a site like or MyFICO, you will know your credit score going into a loan. We recommend that you collect your credit scores and reports and apply online for an auto loan with a company like MyAutoLoan. This will prepare you by:

1. Knowing your credit score and having copies of your credit report.

2. Knowing if their offer is competitive or not.

Taking these steps (ordering your Credit Score and applying for an Auto Loan ) can save you a bundle of money! Some car buyers don’t realize that their financing mistakes can be more costly than overpaying on the price of the car!

Auto Loan Scam #2: “I’m sorry, your loan wasn’t approved.”

This can happen even after you’ve signed the papers and have been driving the car for several days or weeks. They call you up to say that you weren’t approved for the advertised interest rate. What you may not realize is that their “back up” plan is to stick you with a higher rate that was disclosed in the financing clause. You look at the clause and are shocked to find that rate is twice the advertised interest rate (or even higher).

Again, you can avoid this by ordering a credit report and applying for an auto loan prior to picking up your new car.

Quick Fix for This Car Finance Trick: In the event that you didn’t follow our advice, you can still correct the situation by refinancing your car loan. Companies like MyAutoLoan offer “refinancing” on car loans.

Worst case scenario: Refinancing may have a slightly higher rate than if you had handled the car purchase with the online lender in the first place. 9 times out of 10 the rate is still much lower than the rate listed in the finance clause.

Auto Loan Scam #3: “You will need a co-borrower”

Requiring a co-borrower for financing is not a scam. This is common with young adults that are trying to establish their credit history. However, we recommend that you verify all names that appear on the financing application prior to signing on the dotted line. This is especially important if you know that you don’t have the greatest credit history or haven’t established a credit history (example: teenagers).

Example: Dad co-signs a car loan for his daughter, Julie. Julie is going to make the payments and Julie’s dad is the “back-up” in case things go awry. However, it turns out that the auto finance manager was desperate to get the application approved and didn’t submit the paperwork with Julie’s name on it. Dear ole’ dad appears by himself on the loan application and Julie’s credit history remains unchanged. (Julie is not establishing or improving her credit history if her name is not on the loan.)

Auto Loan Scam #4: “We don’t accept checks from online lenders. Their checks bounce.”

This is just another version of a “sales objection”. It is a repeat offender too – I heard this one just last weekend at a family reunion. (Luckily, my aunt is one smart cookie.) If you feel the auto finance manager is truly “concerned” that the funds won’t clear, you can provide the manager with the contact phone number provided in your financing package. Odds are the auto finance manager is trying to push dealer financing on you.

Think about it. If online lender’s checks were bouncing, don’t you think that Chris Hansen from Dateline NBC would have told us about it??

Call their bluff. Let them know that you will be using the online lender financing unless they are willing to match or beat the rate that you have been offered by the online bank. If they push the issue, you can walk out knowing that you received other competitive price quotes on the car from other dealerships. Read more at New Car Buying Tips and Used Car Buying Checklist . (My aunt didn’t even leave her chair before the auto finance manager backed off and accepted the check.)

Auto Loan Scam #5: “I can save you more money on your monthly payment.”

This is another classic way for dealerships to try and make money in the finance department. If you arrive at the dealership to close the deal on a new car, you may hear this line when you pull out a check from another bank (like [an error occurred while processing this directive]). After reading Credit Report Tips , Tips for Low APR Loan Offers , and Dealer Loan vs. Cash Rebate , you understand that the interest rate on your auto loan and the length of your auto loan are what determine the monthly payment of an auto loan.

The Auto Finance Manager may be able to save you money on the payment, but it is important to ask one simple question. “What is the interest rate?” If the interest rate is not lower than what you have already been approved for, decline the offer. Why? There is no way for a monthly payment to be lower if the interest rate is higher and the loan amount and the length of the loan remained the same. It’s that simple!

Then, how can the auto finance manager be "saving me money”. The Finance Manager is about to offer you a longer loan. A longer loan (meaning - more years) will mean a lower payment because it is spread out over a longer period of time, but it will cost you more money. (see the calculations in Dealer Loan vs. Cash Rebate ) This statement will mislead you into thinking that you are saving money. In fact, you could be paying thousands more for their "deal". For example: You want a 4 year loan and the auto finance manager offers you a "lower payment", but the loan is for 6 years!

Auto Loan Scam #6:"Would you like…….it will only increase your payment….."

Let’s back up just a moment. Does this sound like the Auto Finance Manager is negotiating a payment with you? It should, because that is exactly what they are doing. When you are negotiating the price of the vehicle, we recommend that you NOT negotiate a monthly payment. Why? There are many things factored into a car payment: the price of the new car, the price of your trade-in, your interest rate, your loan term, and all the little extras along the way.

This is exactly why you should not negotiate your payment when considering extras either. Whether it is an Extended Warranty , gap insurance, paint sealant, rustproofing, or…(the list goes on), you should be negotiating the price of the item - not the monthly payment. As mentioned on the Extended Warranty page, you can purchase an Extended Warranty for a fraction of what dealers charge. Comparison shop on these extras too. It can save you hundreds of dollars – possibly thousands of dollars.