They might sound tempting, but consumers need to be careful about trusting companies claiming they can reduce monthly car loan or lease payments to help avoid repossession.
That’s according to a blog post from the Federal Trade Commission, the nation’s consumer protection agency.
Falling behind on car loan payments can be a stressful experience. Most people need their vehicles to get to the grocery store, to work and to the doctors — few can afford to lose that transportation. But loan agencies have a right to take cars and trucks away from consumers who aren’t keeping up with their payments.
Loan modification scams feed on this tension, according to the FTC. Most charge fees of only a few hundred dollars up front and promise to work with lenders to significantly lower monthly car payments. They show ads with testimonials from “satisfied customers” and even claim they’ll refund money if they can’t work out a deal with lenders.
For consumers drowning in debt, those promises can sound too good to pass up. But the FTC warned that “it’s smooth talk by scam artists who are out to take your money and provide nothing in return.”
In fact, the FTC found many loan modification companies never contacted their client’s lenders after agreeing to take on their cases. The fraudsters simply collected fees from hopeful customers, without acting on any of their promises. Some even told clients to stop making car payments while the companies claimed to be negotiating with lenders. No negotiations took place and the clients lost their vehicles.
“Some victims learned that the companies hadn’t done anything only after their lender contacted them about repossessing their vehicle,” according to the FTC blog post.
So what are some safer steps you can take if you’re behind on your car payments? The FTC suggested contacting your lender directly to discuss your options. You should make that contact as early as possible — the longer you wait, the fewer options you’ll have. Most lenders will offer auto loan modifications that involve either deferring missed payments to the end of the loan or extending the loan term to reduce monthly payments.