Dealers Leaving Customers With Unpaid Loans

As thousands of auto dealership across the country close, thousands of consumers are ending up on the hook for used car loans that the dealers were supposed to have taken care of.

When a car buyer owes money on a used car that they are trading in, the dealer agrees to pay off the outstanding loan. But as dealerships go out of business, some are leaving consumers with the bill. The lender will then go after the previous owner who thought the debt was already paid. They can also repossess the car from the new owner who assumed it came with a clear title. The consumer can end up with two car payments and a damaged credit rating.

The problem may only get worse as the recession continued. In some states, dealers are required to prove they are paying off a vehicle’s lien before transferring the title. There are also a few states that have programs that require dealers to post insurance bonds to repay victimized car buyers. Consumers in states that don’t have these programs have little recourse. Consumers can try to sue the dealership, but if they have declared bankruptcy, there may be no money to reclaim.

To avoid these problems, new car buyers with trade-ins should first pay off the loan themselves, or deal with high volume dealership that is part of a larger auto group and therefore less likely to fold. Used car buyers should insist on seeing a vehicle’s title to make sure that it has no liens.