Expert reveals how to spot and avoid car finance fraud

In 2023, millions of UK adults have been the target of fraudulent activity, with scams costing Brits a whopping £580m within the first six months of the year.

With an increase in fraudulent conduct across the country, it's important for consumers to be vigilant at all times to avoid losing money.

This is specifically true when it comes to taking out car insurance. As the value of motors continues to rise, the higher price tags are fuelling fraudsters to trick people with alluring, budget-friendly scams.

Jonathan Such, Head of Sales at vehicle finance company First Response Finance, said: "From predatory lending schemes to identity theft, fraudsters are always coming up with new ways and tactics to gain money illicitly.

"No matter how financially savvy you are, anyone can fall victim to scammers, especially with the current cost of living crisis causing even the most sensible of judgements to slip.

"But with a few tips in mind, such as doing your research and verifying the legitimacy of car finance providers, you can ensure you’re always as wary and alert as can be."

So, what are the red flags to watch out for when securing vehicle financing, and how can you prevent unwanted surprises?

Unrealistic offers

Unrealistic offers, including very low interest rates and lenient approval terms, should always raise alarm bells. Does a loan offer sound too good to be true? Then, unfortunately, it probably is.

Fraudsters might tempt you with an appealing offer that – at first glance – sounds way more affordable or convenient than those provided by reputable lenders. This is an easy tactic to lure consumers in, as you'll be presented with a pocket-friendly solution that hides unsustainable terms and secret fees.

Top tip: "one of the best ways to avoid falling into the trap of unrealistic offers is to do plenty of research beforehand and compare your options," Such explained. "In fact, having a broader idea of what reputable lenders in the car finance market are offering will allow you to identify plans that don't look too legitimate.

"Also, if you're considering a very advantageous offer, getting the lender to put everything in writing is crucial. If the lender has honest intentions, they will have no trouble outlining the plan's specifics on paper, eliminating the risk of fraudulent surprises in the long run.

"If they hesitate or are very vague in their wording, don't commit to anything – it's best to simply walk away."

Upfront fees

Generally speaking, reliable lenders don't ask for upfront fees when you take out car finance. If they do, they might have a policy that grants you a full refund should you decide to cancel the arrangement within a specific timeframe.

Scammers might ask for advance fees to cover loan and insurance costs without even bothering with credit checks or loan approval schemes.

In this scenario, you can expect to lose the money and never hear back from the illicit provider. And if they ask for your credit card details, it could even lead to more serious problems.

Top tip: if you're asked to pay a sum of money to access your car finance loan, always read the small print before sending over any funds.

Should a reliable lender require an upfront fee to 'unlock' your loan, they'll be very transparent about the charges, providing you with a detailed breakdown explaining their purpose.

If you still don't feel comfortable making the payment or can't cover the expenses yet, it's completely fine. Just browse for other lenders that better suit your needs.

Rushing you into making a decision

Another common fraudulent tactic is to pressurise customers into making a rushed, impulsive decision.

For example, scammers might emphasise that they're providing you with a time-sensitive, exclusive offer that needs to be accepted as soon as possible, forcing you to commit to their fraudulent proposal.

Reputable lenders, instead, will take a slower approach. They'll provide you with plenty of time to review the agreement and encourage you to ask any questions you may have. They'll also carry out some checks before finalising the deal, so be cautious when a lender tries to rush you into making a decision.

Top tip: "buying a car and taking out a loan to cover the expenses is a significant commitment," Such said. "Legitimate lenders understand that and would never put pressure on their customers to commit to a deal until they are happy and comfortable.

"So, if you feel like you're being pressurised into accepting an offer, try to keep a cool head and take a step back. If you've not been given the time to review all the options and paperwork, then there might be something that’s not quite right."

Unlicensed lender

Taking out a car loan from an unlicensed lender can be extremely risky. In fact, as opposed to licensed loan providers, they aren't subject to specific regulations that protect the customer's interests, increasing the risk of fraud.

Unlicensed lenders are freer to carry out their illicit operations, whether that's disappearing with upfront fees or stealing your personal information, which can lead to identity theft. So, what can you do to prevent this?

Top tip: to check if a lender is reliable, visit the Financial Conduct Authority's (FCA) website. Legitimate lenders are registered with the FCA and can be searched for here.

It's also wise to do your own research and check out customer reviews online so that you have all the information you need to choose the right lender.

Fraudsters can strike when you least expect them to and are always finding original ways to trick customers. But with a few aces up your sleeve, from reading the small print to spotting any red-flag behaviour, you'll be able to avoid their illicit tactics and pick a legitimate lender who has your best interest at heart.