No one wants to find out they’ve become the victim of a scam, and especially when it comes to buying a big-ticket item like a car. And yet it happens to thousands and thousands of people every year. When you read about the different kinds of used car scams (you’ll find articles about car scams on our partner website here), you might think you’d never fall for any of those, but you’d be surprised. Even car experts like us can get scammed. In fact, we’re familiar with the newest car selling scam because it happened to us! We’re sharing this information with you because we want everyone to be aware and to protect themselves from becoming a victim.
Selling a Car with Loan is the Latest Car Selling Scam
This latest car selling scam is very sneaky, so we want to explain in detail how it works:
A person is selling their car and has a car loan on it that is not yet paid off. This seller sends a check to their lender to pay off some or all of the remaining balance. When the lender receives the seller’s check, they will immediately but tentatively apply the payment and reduce the remaining balance while the check is in the process of clearing. Meanwhile, whoever is buying the car wants to know the payoff balance on the loan to figure out the price they’re going to pay for the car.
When the buyer calls their lender for a payoff balance quote, it will be for the amount that includes their recent payment. The buyer then pays the seller the difference. But that seller pay off payment hasn’t cleared yet. Then the scammer quickly puts a stop payment on the check. The seller/scammer knew all along the check would bounce because of insufficient funds. Either way, the end result is that the buyer will out of cash that he or she paid to the seller for the difference between the agreed price and the loan balance, and the buyer will not be getting the title to the car being held by the lender unless they pay off the rest of the loan balance, which is now more than they were expecting thanks to the sneaky trick the scammer played on them. Like we said – if it can happen to us, it can happen to anyone! Here is a hypothetical illustration for such scam in numbers:
Let’s say you found your dream truck for sale online by a private party for $25,000. You met with the seller and after some negotiation you agreed to buy it for $24,000;
You both called the lender and were quoted a pay-off balance of $2,000 for the truck via a real time call with a lender. All is legitimate, right? Not necessarily! In a scam situation, the seller could have sent a payment that would not clear for any amount, let’s say for $15,000 in our hypothetical case. So, once the payment bounces, the real pay off is actually $17,000 ($2,000 balance plus a pending to-be-bounced payment of $15,000);
You prudently pay the seller $22,000 of your hard earned cash, which is the difference between the pay off originally quoted by the bank and the selling price of the truck;
Finally, when you try to get the title for the vehicle you discover that the real pay off is $17,000 and the full amount that this truck is about to cost you is $39,000! Yes, you do have the name of the seller and do have some legal avenues to pursue, but in a real life situation dealing with such issues is easier said than done!
How to Avoid the Newest Car Selling Scam
There are two main ways to avoid becoming the victim of this kind of car selling scam:
The first would be to only buy used cars when you know there is no car loan involved. This one may not be realistic because most people still owe money on their vehicle, even when they go to sell it. You’ll have a much smaller pool of cars from which to choose if you eliminate all cars with outstanding loans.
The second way you can avoid this scam is to get in touch with lender yourself and check on the payment history – if there is a payment “in process” because the check hasn’t cleared, you’d want to wait until you know for sure all payments have been fully processed. This way you don’t have to eliminate all cars with loans when you’re shopping for your next used car.
It’s important for everyone to know about all the various ways scammers try to take advantage of people when buying used cars. The car selling scam covered in this article is just latest in a long list of ways scammers try to trick people, including car selling services like Driveo! We sincerely hope this information helps ensure it never happens to you.