Three Common Auto Loan Scams
A Credit Article Contributed by Augusta Wilson
What is an Auto Loan?
In order to avoid common auto loan scams, you should first understand what an auto loan is, and how it works. Quite simply, an auto loan allows you to purchase a car, and pay it off monthly. The monthly payment will of course vary, depending upon the initial price of the car, and the applicable interest rates. Auto loans are indeed useful- let's face it, not many of us can afford to buy a car outright, in cash.
Unfortunately, however, the car business is extraordinarily competitive, and some car dealers are more than happy to exploit their client's trust in order to make a quick buck, or trick them into an inappropriate loan.
The Three Most Common Auto Loan Scams
One of the most common auto loan scams is the 'no interest' promise made by dealers. Firstly, the the requirements for such an auto loan are so stringent, that most applicants won't be approved. Secondly, anyone can theoretically pay off their loan within a year, when the account is most likely to be interest free, provided that they have the means to do so. For those that are unable to do so, the promise of paying a zero interest loan is misleading.
Sure, you may not have any interest that accrues during the first year, or during the first months that the account is active, but what happens after that grace period is over? Does the zero interest suddenly skyrocket to 24.9%, if you're late with one payment? Always read the fine print, when signing for an auto loan. You will be financially responsible for knowing every term and condition.
The second scam to be aware of when purchasing a new car is the Retail Installment Sales Contract, or RISCs. Whilst these agreements are generally legitimate in their own right, an unethical dealer can easily mislead a prospective buyer into believing that a RISC is indeed a good deal for them. In reality, a RISC is a loan that the dealer sells a buyer, and then sells it to a bank or other lender, at a markup price.
Remember though, that the higher the APR, or interest rate, the better for the dealer, as they make money off of the interest, so be sure that you have the decisive voice in the borrowing process! !
The final, most common, scam that you should be aware of concerns your credit score. This method quite simply involves the dealer lying to you about your credit rating, during the auto loan application process, which allows the dealer to talk you into taking out a loan, with a higher interest rate. The simplest way to avoid this rip-off is to know your credit score. This is good advice for any consumer, but is especially important to take when shopping for a car. Don't be afraid to go shopping with a copy of your credit report, either!
What Do I Do If I've Fallen Victim to an Auto Loan Scam?
You should report the dealer or dealership to a reputable consumer advice bureau, and then to try to rectify the situation either through the dealership itself, or legal mediation. The best advice, of course, is to avoid the scams in the first place, by empowering yourself with knowledge!
