Borrower Beware: Car Dealers Pushing Loan Defaults

As the cost of car loans increases, many people find themselves upside down in bad loans when they go to buy a new car. Some dealers are taking a questionable route in solving that issue---telling customers to stop paying the loan and give the car back to the lender---ostensibly freeing up the customer to sign another note for a new car. The practice isn't necessarily widespread, but it has increased in recent years, according to a new Wall Street Journal report.

KTRH Car Pro Jerry Reynolds is also familiar with this practice. "I probably get 4 or 5 e-mails a year from people who say I went to a dealership to buy a new car, but I owed too much money on my old car, so the dealership said just let it go back...and some people believe that," he says. "All the (customer) sees is the vision of that brand new car they really want, and they're willing to do whatever it takes to get that...and some unscrupulous dealers prey on that."

Reynolds warns anxious buyers not to fall for this, because you are still legally on the hook for the loan even if you give the car back. "If you let that car go back, they're going to go to auction and sell it, and whatever's left over, the finance company can come after you for that amount," he says.

Some dealerships caught doing this have been sued by lenders and borrowers, and forced to go out of business. Reynolds says if you agree to this when buying a car, you'll likely end up with two car loans and really bad credit. "Don't do it," he tells KTRH. "They will tell you that there's no ramifications and whatever...that's just not true."

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