Purchasing a car is a major financial decision, one that often involves securing a loan to cover the cost. However, if a car dealer has lied on your loan application—whether by claiming a higher income or misrepresenting a better credit score—you might be stuck with a vehicle you can’t afford and a loan that could harm your financial future.
Being approved for the new car under false pretenses can have long-lasting effects that may be difficult to recover from. Deceptive practices such as these often rise to the level of fraud, leading to a damaged credit history, having your vehicle repossessed, your loan defaulting, and legal liability. In this article, we review key red flags to watch out for and what to do if a car dealership lied on your loan application.
The dealer may have committed Auto Fraud
The minute you saw it on the lot, you knew you really wanted that new car. Unfortunately, you were approved for a car that you can’t afford and now you’re going broke.
It’s not your fault. Many dealerships are motivated by the commission they receive from financial institutions for arranging loans. Unfortunately, some dealers exploit this and engage in fraudulent practices, often without the lender’s knowledge.
1. Falsifying your income
One common form of fraud is lying about income. A dealership eager to close a sale might exaggerate your income on the loan application, making it appear that you earn more than you do. When this happens, you might be approved for a loan with higher payments than you can realistically afford.
The dealer might also manipulate your credit information to secure the loan at a higher interest rate. This means you end up paying more over time than if your financial situation had been accurately represented.
2. Power booking
Another tactic is power booking, where the dealer inflates the value of the vehicle by falsely claiming it has features that it does not. For instance, they might add non-existent upgrades like a rear-view camera or remote start to the list of features on the application. This can lead to a larger loan amount than the vehicle is actually worth, leaving you to pay significantly more than you should.
3. Yo-Yo financing
A particularly deceptive practice is yo-yo financing. In this scenario, after you’ve driven off the lot believing your loan is approved, the dealer may later claim that the financing fell through. They will then pressure you into signing a new contract, often with less favorable terms, such as a higher interest rate. If you resist, the dealer might even threaten to repossess the car or accuse you of theft.
Now what do you do?
Is it auto fraud? Yes, and it’s more common than you think. However, if you discover a car dealer lied on your financing paperwork or application, there are steps you can take. First, contact the dealership’s management or customer service department and request they correct the information and renegotiate the terms of the loan. If the dealership refuses to cooperate or if the issue is severe, report the fraud to the Consumer Financial Protection Bureau (CFPB) or the Federal Trade Commission (FTC).
Most importantly, regardless of whether you choose to pursue legal action or not, seek legal advice from an auto fraud attorney. They can help you understand your rights, guide you through the process, and represent you in any legal actions if necessary.