An online auto loan is just one of the many types of loans people can get on the Internet without ever stepping foot into a bank. Unfortunately, scammers often take advantage of people looking for a car loan online, and it can be easy to do because there is no in-person meeting necessary, and almost anyone can put up a website that looks legitimate. Always check with the Better Business Bureau or other agencies before giving out your personal information, especially your Social Security number, to an online lender.
There are some common loan scams you should watch out for if you're looking to get an online auto loan.
The Guaranteed Loan Scam
If a car loan lender claims that you are guaranteed to get a loan, remember the old adage that if it seems too good to be true, that's probably because it is. By claiming that all loans are guaranteed approval, they get people to apply who know they can't get a loan anywhere else and can't buy a car any other way. It's a method of separating people who already have financial problems from even more of their money.
This one is tricky, because people who have poor credit or no credit at all may need a co-signer to get a legitimate loan, even from their neighborhood bank. But some unscrupulous car loan lenders will tell you that you must get a co-signer because they know that you can't get approved for the loan. You think that the co-signer will help you get the loan, which will help improve your credit. But the lender puts the entire loan in the co-signers name which won't help your credit and can even cause insurance problems. It also puts the entire burden of the loan on your co-signer. Check documents carefully to ensure that both names are on everything if you do need a co-signer.
Up-Front Fee Scam
Avoid any online auto loan lender that asks for an up-front fee or asks you to send down payment money up front. This is outright theft, because you'll probably never hear from them again.
Credit Score Scam
Know your credit score before you apply for financing anywhere, whether online or in person. A popular way to scam you is to tell you that your credit score is too low to get the best interest rate, even if it's not true. They assume people don't know their score and may not question it. Be armed with your score before you deal with lenders, just in case.
Changing Terms Scam
This is one of the most popular car dealer scams when you get financing through the dealer, but it can apply to online loans, too. After you've been told you're getting the loan, maybe even after you already have the car, the lender calls and says there was a problem and you weren't approved, but they can give you a loan at a higher interest rate. They assume you'll pay the extra rather than take the car back. In this situation, the best thing to do is return it, refuse the online auto loan and start again.