Auto Loan Application Fraud

Many car buyers must take out an auto loan to buy a new or used car. With dealership financing, the dealership makes it convenient to buy a car on the same day. But car dealers can use financing to add costs or trick buyers into agreeing to worse loan terms.

We explain common auto dealer fraud tactics so you can avoid getting ripped off. If you bought a car and the dealership tried to change the financing terms, contact a vehicle fraud lawyer for legal advice.

What Is Auto Loan Application Fraud?

Auto loan application fraud involves misrepresenting loan terms to lenders or buyers. Car dealerships can use auto loan application fraud to increase their profit at the expense of the consumer. Material misrepresentations and deceptive practices are against federal and state consumer protection laws.

Auto financing generally begins with filling out an auto loan application. The dealership may change your loan application information to get preapproval for a better loan. The dealership may also claim your application went through even if they didn’t get approval from any lenders. After you take the car, they can try to change the contract terms to pressure you into signing a new contract.

Many car buyers agree to the new contract because they don’t understand their legal rights. The dealership may have already sold the trade-in, leaving the buyer without a vehicle. The dealership can also lie about the payment terms to pressure the buyer into agreeing.

Can Dealers Lie About Your Income on a Loan Application?

When you work with them, the salesperson or financing department will get your personal information to apply for a loan. This generally includes your:

• Name
• Social Security number
• Proof of income (pay stubs and bank statements)
• Insurance information
• Proof of address

Auto lenders will get a credit report to see whether they will approve a car loan and the loan terms and conditions. If you have a higher credit score, you will generally qualify for lower interest rates. Buyers with poor credit may have higher interest rates or be asked to pay more for the down payment.

Shady finance managers may inflate your income in the initial application so that you will get approved for a lower monthly payment. The dealership will make a conditional purchase contract and send you home in the vehicle. However, the lender will change the financing terms once they find out about your actual income. Then, you’ll have to return the car and be pressured into taking the vehicle at a higher cost.

Intentionally lying about your income on a credit application is auto lending fraud. Unfortunately, this doesn’t stop shady dealers from auto loan fraud. Consumers should report loan fraud to their state attorney general or the Federal Trade Commission (FTC).

Why Do Dealers Say You’re Approved for a Loan When You Aren’t?

Dealers can say you’re approved for an auto loan before financing approval. Yo-yo financing is a common dealership tactic to make a deal at a better loan rate and change the rate after you take the car home. Many borrowers think the deal is already final when they get a call from the dealership telling them to return the vehicle.

Before signing a contract or taking possession of the vehicle, ensure you get it in writing. Find out whether the contract is final or contingent on loan approval. Check the financing terms, including the down payment, interest rate, and repayment terms.

What Are Down Payment Loans?

Another type of loan application fraud involves fake down payments. Lenders generally require a minimum down payment, which depends on your credit rating. If you can’t afford the down payment, the dealership inflates the sales price to include a ghost down payment. The lender approves the deal based on the false information, and you will pay more money in interest.

How Can I Prevent Auto Loan Application Fraud?

A simple way to prevent auto loan application fraud is to get financing through your bank or credit union. You can get preapproval from your own lender before going to the dealership. If you’ve already secured financing, the dealership can’t try to change the loan terms or lie on your application.

If you want to buy a new car with financing through the dealership, shop around with other auto dealers. A dealership offering a deal that’s too good to be true could be a red flag for possible dealer fraud. If you think the dealership is trying to trick you, walk away.

Can You Sue a Dealership for Auto Loan Scams?

Deceptive business practices are a type of consumer fraud. It can involve changing the loan terms without your consent or lying on your loan application. You can sue an auto dealership for common fraud in state court. An auto dealer fraud lawyer can review your case and explain your legal options.

Your attorney can file a fraud lawsuit against the dealership to help you get your money back. Damages in a dealer fraud case can include a refund, punitive damages, and attorneys’ fees. To find out about your legal rights after a dealer loan application scam, contact a dealership fraud lawyer for help.