Business owners need to be a little more cautious while helping their customers with the approval of their auto loans. According to a recent revelation by a financial research firm, there’s an ominous trend of rising auto loan frauds. Experts from the industry are terming this to being similar to the financial crisis hitting the US market in 2009. The startup firm that made the revelation helps some of the biggest lenders identify bogus borrowers.
The report revealed that about 1% of the auto loan applications include some or the other type of material misrepresentation. This report is based on the analysis of reports from banks and financial companies, which pegs the total lender losses this year $6 billion. The fraud rate of nearly one percent is moving towards the same level as that of the mortgages in the year 2009. However, auto dealers and lenders don’t need to be too worried. Even though the number of auto loan frauds is on the rise, it won’t lead to an economic crisis. The auto debt outstanding is far less than the housing loan debts.
Common Auto Loan Frauds
As far as hidden fraud cases are concerned, there are inexplicable similarities between the mortgage and auto industry. Predicting the 2009 crisis was tougher as there was lack of information sharing among the lenders and investigation was never done in majority of the cases. Some of the common frauds included borrowers providing false income data, which included providing false payslips. There were some loan applications which included false information on the type of vehicle being financed or the value of the vehicle. This misinformation was provided either by the car dealer, or customers or both.
Now, as a car dealer or commission agents, business owners need to show a lot more professionalism, if they want to stay unaffected by the auto loan frauds. Every loan application has to be screened by the dealers so that frauds can be prevented quickly and effectively.
There’s no concrete evidence that car dealers work in collusion with the consumers to carry out fraud car finances. However, statistics reveal that approximately 3% of the car dealers have helped in submitting fraudulent applications. Car dealers need to stick to ethical dealings to prevent such frauds and not only save themselves but the economy from becoming a victim of such sinister designs.
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