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The defi Team defi INSIGHT, Fraud

phantom auto loans

Phantom auto loans are a sophisticated scheme to defraud banks, credit unions, and fincos. No car is ever sold. Often, no actual dealership is involved. Fraudsters have cooperated to fabricate seemingly legitimate auto loans that have already robbed lenders of many millions of dollars. Without the right loan origination software technologies, phantom auto loans are guaranteed to hurt the profitability of your portfolio.

How Fraudsters Conjure Up Phantom Auto Loans 

Phantom auto loans are a team effort. To successfully execute the scheme takes a lot of upfront work. For individual ringleaders or fraud cartels to create the impression of a legitimate loan application, they will:

  • Recruit accomplices. Participants often have low credit scores and need cash; 
  • Create convincing bank accounts, websites, and addresses for fake dealerships;
  • Create false identities, income statements, employment records, etc.; and
  • Clean up or repair credit records of borrowers with lousy credit histories.

It’s not just individuals and cartels. Unscrupulous dealerships can perpetrate phantom auto loans to boost profits—all without selling any actual vehicles. These dealerships carefully distribute loan applications among different lenders to avoid calling attention to their scheme.

Income and employment history are easily falsified. Learn four ways you can use income and employment verifications to fight fraud in this Equifax webinar.

Indicators of Phantom Loans

There are several variations of the phantom auto loan scheme, but lenders should beware of three typical indicators in an auto loan application. 

  1. Fake VIN or VIN of a vehicle not intended for sale. The goal of the scheme is to profit from a vehicle sale that never occurs.
  2. False identity or straw borrower to create the semblance of a legitimate borrower. Without an actual borrower, the profit is higher for everyone in the scheme.
  3. Misrepresented down payments. When a dealer initiates the phantom application, the value of the collateral is usually inflated. The application indicates the borrower made a down payment when, in reality, there was none.

With hundreds to thousands of auto loan applications in process at any given time, it’s exceedingly difficult to identify fraud, especially if your loan origination software doesn’t incorporate some of the latest fintech innovations.

You need the latest machine learning capabilities to identify fraud. Learn how in PointPredictive’s Hidden Patterns of Auto Lending Fraud webinar.

Identify and Prevent Phantom Auto Loans

Without the right technology, it’s nearly impossible to identify and decline phantom auto loans before they damage your portfolio. Even when automation is relieving underwriters of repetitive tasks, no team of underwriters has the time to review every loan application in detail to counteract fraud. Lenders that need the best fraud prevention use machine learning and verification services during the full loan origination process.

By analyzing tens of millions of loan applications—legitimate and fraudulent—machine learning techniques develop and continually refine algorithms that identify misrepresented information highly indicative of fraud. Applying fraud recognition algorithms to loan applications lets lenders pinpoint: 

  • Borrower identities that may be stolen or fabricated;
  • Income statements that don’t sync with applicant occupation or other attributes;
  • False employment history; and
  • Dealers highly suspected of perpetrating phantom auto loan schemes.

When borrower identity, income, or employment histories are in question, cloud-based services like id:analytics, TransUnion Synthetic ID, and TheWorkNumber from Equifax can confirm or refute suspicions and guide the loan origination steps. Collateral inflation and vehicle verification questions can easily be handled by automated calls to vehicle valuation services like Black Book


Fraudsters conjure phantom auto loans for cars that are never sold. Lenders are guaranteed to take big losses on this type of fraud. Modern loan origination software that incorporates machine learning fraud analytics, coupled with cloud-based verification services, help lenders counteract this crime and guard against losses.

Getting Started

defi SOLUTIONS’ loan origination and analytics software experts can help you apply the latest fintech innovations to fight fraud. Avoid phantom auto loan losses by contacting our team today or registering for a demo of defi LOS.


Get in touch with us today and get a demo!


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