Car Refinance Scams

Don't leave the dealership without finalizing your loan.
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Car refinancing scams can take different forms, but all of them can result in you losing money, time and possibly the vehicle. Whether you're in the market for a new loan or have a current one, you may end up the target of a refinance scam from a dishonest dealer. Take your time and research dealers before signing any papers or agreeing to a deal.

"Yo-Yo" Financing

In a yo-yo financing scheme, you go through the financing process and leave with the car from the dealership, believing you're all set. Sometime later, the dealer calls you and says the financing didn't go through. At this point, the dealer pressures you into refinancing the loan or going with another lender with less favorable terms. You can refuse, but since you've been using the car, the dealer can charge fees for wear and tear along with daily rental rates.

Misleading Information

Auto dealers and financing reps may present misleading information to scam a borrower who is refinancing a current auto loan. For instance, the dealer may quote you a 6 percent interest rate but put 7 percent on your refinancing contract, costing you more interest over the term of the loan. Another tactic involves lies about your credit. The dealer says you have bad credit to justify giving you less favorable loan terms when your credit is good or better.


A common auto loan refinance scam involves loan modification. The scamming company advertises help to borrowers facing repossession because of overdue payments. They charge an upfront fee for the service, usually more than $100, and tell the borrower to stop paying. The company promises to lower the borrower's payments and alter the loan terms or refinance it -- but doesn't do anything. The borrower's car is repossessed and he's out the money he paid the scamming company.

"Guaranteed" Refinance

A dishonest dealer may say you're only stuck with the interest rate shown on your loan documents for a specific period of time, such as a year. After that, the dealer promises to refinance your loan at a lower rate as long as you make payments on time. However, the dealer can't guarantee you'll get a refinance and a lower rate. Dealers assign the loan to an outside lender because they can't finance your loan directly, and you'll have to go through the lender's process for a refinance.


Red flags that may indicate a refinance scam include the dealer evading your questions and paperwork with information that doesn't match what you were told. Don't sign any loan documents without reading the terms first, and don't hand over any money without written confirmation of what you're receiving in return. If you've experienced auto refinance fraud, report the scamming business to your state's attorney general and the Federal Trade Commission.

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