Predatory Auto Loans

Cost consumers over $25 billion in hidden interest over the lives of their loans.

Common Predatory Lending Practices

Unfortunately, predatory lending practices aren’t just found in the mortgage industry.

The automobile loan market is filled with companies who knowingly engage in these practices. For consumers, this translates to paying more than is fair and reasonable for an auto loan, not getting promised accessories or benefits, or agreeing to and signing a loan with unfavorable terms (unusually high interest rates and/or penalties).

If you are in the market for a new or used car, understanding and being aware of these common scam techniques can save you thousands of dollars over the life of your auto loan and untold headaches when dealing with unscrupulous lenders.

Interest Rates
The most common predatory lending practice is overinflated interest rates. Many companies offer low or no-interest introductory interest rates, but after a certain amount of time, the rates jump to well over the market standard. Accordingly, your monthly payment increases dramatically.


If you have a less than perfect credit history, many companies will offer you a loan but with an extremely high interest rate. Some will also require a large down payment.

Lenders are always looking for good, reliable borrowers. Prospective buyers should shop around for the best deal. There are online sites which offer quotes with only some basic information, such as income verification and a quick credit check. Also, contact your bank or credit union. Having your loan approved beforehand can save you much time and aggravation, not to mention money, when shopping for a new car.

Uninstalled Extras

Many customers order “extras” for their cars, such as special tires or wheels, sound systems, etc. These extra items should be included in the total amount of the car loan. A common predatory practice is to give you the car without the extras installed. When taking delivery of your automobile, be certain that everything listed on your bill of sale is installed on your car. Do not accept or sign for the car without carefully examining it.

Inflated Prices

Predatory lenders often inflate the price of an automobile, which turn increases the amount of your loan. “No down payment” usually comes with a lot of fine print. Many consumers today are financially “challenged” when it comes to credit history and credit scores. Lenders know this and can charge exorbitant interest rates and unusually long terms for a loan. This can cost you thousands of dollars in interest fees. Again, shop around for the most favorable terms and also check your credit report. If there are errors, you want to clear them up before applying for any type of loan.

Hidden Fees

Any fee that you are required to pay has to be listed on your loan document. Go over it carefully. You may have a great deal as far as interest rate and the price of the automobile, but the fees that some lenders attach to the loan can add hundreds if not thousands of dollars to your final loan amount. By law, each fee has to be fully explained to you. If these fees seem abnormally high to you, don’t sign. Find out what other lenders charge and then make a decision.


The kickback is alive and well in the auto loan business. This is when a seller puts you in touch with a specific lender. When you sign the loan agreement, the seller gets a certain amount of money from the lender for sending you to them. Unfortunately, you are the one ultimately paying since the kickback amount is typically rolled into your loan amount in the form of higher interest rates.

In another scam, you sign a loan agreement and drive off with the car. The dealer then contacts you and explains that you no longer qualify for the original loan and if you want to keep the car, you have to agree to a more expensive loan. (more money for them)

The bottom line is that consumers need to investigate thoroughly before signing an automobile loan. Check different dealerships for prices, research various sources for loans, and be aware of what you are agreeing to. Trust yourself, rather than the seller.