How To Recognize Car Loan Fraud

To avoid document fraud, identity theft, and refinancing scams, always talk directly to your lender to confirm details and beware of too-good-to-be-true offers.
Written by R.E. Fulton
Reviewed by Jessica Barrett
Document fraud, identity theft, and refinancing scams are on the rise and a threat to car owners and lenders alike. To avoid car loan fraud, always talk to your lender directly about loan details and beware of offers that seem too good to be true.
Auto loan fraud is a growing threat to car owners and lenders, and the loan process exposes you to fraudsters who will take your money without solving your problems. 
To help you understand how car loan fraud works and avoid fake promises of a lower payment, the
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Types of car loan fraud

Car loan fraud is on the rise—but what does it look like? The three main types of car loan fraud are document fraud, identity theft, and refinancing scams.

Document fraud

A lot of car loan fraud falls into the category of document fraud, in which loan applicants create fake documents to qualify for higher loans. Forged paystubs, photoshopped employment documents, and false residency information are all forms of document fraud. 

Identity theft

The US has a growing problem with identity theft and car loans. Instead of faking identifying documents, some fraudsters steal real documents from people with good credit and take out loans in their name. 
This type of fraud is often the work of organized crime rings—and it’s all too common. In 2019 alone, the Federal Trade Commission (FTC) received
650,572 complaints about identity theft
Synthetic identities are another common form of identity fraud. In this method, fraudsters generate fake social security numbers to create a fresh start for an individual with bad credit. 

Refinancing scams

Document fraud and identity theft cause most problems for lenders, but if you’re trying to
refinance a car loan
, you need to be on guard for auto loan refinancing scams. If a company promises to lower your monthly payments, proceed with caution. Some companies will take your money and do nothing to lower your loan. 
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How auto refinancing scams work

Before you can understand how to recognize an auto refinancing scam, it’s important to understand how this kind of fraud works. Here are the common steps to an auto refinancing scam: 
  • The company charges an enrollment fee. You’ll be asked to pay several hundred dollars upfront before the company can lower your rate. 
  • The company asks you to stop payments. They might tell you that they’re busy negotiating a deal with your lender. 
  • The company may ask for additional money to continue working on your case. 
  • The company asks you to send payments directly to them. They’ll claim that they’ve reached an agreement with the lender and will pay them on your behalf, but in reality, they’re just pocketing your money. 
Because the fraudulent company claims to be in contact with the lender, many people don’t realize they’ve been scammed until the lender reaches out to collect their missed payments—or even to repossess their car.
Key Takeaway Auto loan refinancing scams work by requiring you to make repeated payments in return for false promises that the company is negotiating a deal with your lender. 

How to recognize car loan fraud

So, how do you know if that lower car loan is fake? Here are a few things to watch out for: 
  • Claims of relationships with lenders. This is a big red flag. Talk to your lender directly before you give any money to a company that claims to know them.
  • Fake testimonials on their websites. Don’t take financial advice from “Debbie from Kentucky.”  
  • Money-back guarantees if they can’t make a deal with your lender. In reality, it’s impossible to guarantee everyone a specific amount of savings on a car loan. 
If you see any of these red flags, you’re probably looking at a scam. If you’re having trouble keeping up with your monthly loan payments, here’s what you can do instead:
  • Talk to your lender. You may be able to get a modification to your loan agreement, such as an extended loan term. Lenders will rarely cut the total amount of principal and you’ll probably end up paying more in interest over the life of the loan, but a modification can give you breathing room if you’re in a tight spot. 
  • Report the scam to the FTC and your state attorney general. If you suspect you’ve been ripped off by a fraudulent company, report the scam to protect others. 
Key Takeaway: If a company promises exact amounts of savings on your auto loan or tells you that they have a relationship with your lender, proceed with caution. 

How to avoid fraud and save money on your auto loan

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