For many consumers, the purchase of a new vehicle also involves the trading in of an older vehicle. As part of the transaction, the consumer sells his old car to the dealership. The consumer may still have an outstanding loan balance on this older vehicle. In some cases, the loan balance is higher than what the older vehicle is worth. Consumers must use caution in these situations as auto fraud may occur.

How Dealers May Attempt to Hide Negative Equity

When a consumer trades in an older vehicle and purchases a new one, the dealer will first assign a value to the older car. If the value of the car is less than what is still owed on the loan used to purchase that vehicle, this is known as negative equity. In order to move forward with the sale on the new car, the dealer cannot increase the cash price of the new vehicle to cover the negative equity. Attempting to hide negative equity is a form of auto fraud. The dealer may show on the contract of purchase that the amount of payoff is the same as the trade-in value, but then increases the purchase price to cover the negative equity.  The salesperson may even claim that they will pay off your trade-in as the trade-in value and lead you to believe that the payoff amount is what was given as the trade-in value, but then conceal the negative equity by increasing the purchase price.

Consumers may be harmed in this type of situation because the consumer may have to pay higher taxes on the inflated sales price. Consumers should never be paying sales tax on a direct loan from the car dealer. In addition to the auto dealer, the parties who ultimately purchase or invest in the credit contract after the sale is finalized can also be held liable for fraud when negative equity is hidden.

Consumers must protect themselves whenever auto fraud is suspected. Fortunately, we are here to provide guidance. We encourage you to act quickly by contacting us today at (804) 282-7900.