Income and Synthetic ID Fraud are Spiking in Auto Lending Channels

Nearly 9 out of 10 auto dealers report worrying about fraud, according to a survey of auto dealers by Experian — and they have cause to be. 

Dealers experience big losses when even a single fraudulent auto deal takes place. Forty-five percent of dealers say that a single instance of fraud results in a loss of $10,000 to $20,000. And 31% of dealers say their fraud losses are even greater.  

“When one fraudulent transaction can wipe out tens of thousands of dollars in profit, it’s simply too big to ignore,” said Jim Maguire, Experian’s Senior Director for Automotive. “These losses will eventually cut directly into a dealer’s margin and put serious strain on their operations, making it harder to stay profitable.”

Who Pays for Auto Fraud?

Dealers have little recourse when they are hit by fraud. Sixty-four percent of dealers report that insurance covers less than half of fraud costs. It is a similar story with lenders. Sixty-seven percent of auto dealers say lenders cover less than 50% of fraud losses. Ten percent of auto dealers say lenders offer no coverage at all for auto fraud. 

Types of Auto Fraud

The most common auto fraud schemes have to do with fraudsters inflating their income, according to Experian. Sixty-two percent of auto dealers say fraudsters use forged income documents, and 50% of auto dealers say crooks make false income claims.  

In addition, identity fraud is a fast growing fraud risk at auto dealerships, with 44% of dealers facing synthetic identity fraud attempts in the past 12 months.

Synthetic identity fraud occurs when thieves use a real Social Security number they have stolen to create a false identity with a fictitious name, address, email account, phone number and date of birth. 

Sixty-five percent of auto dealers say that 5% to 24% of auto loan defaults were caused by fraud in the past 12 months. According to auto dealers in the Experian report, 20% of indirect fraudulent loans get charged back to dealers by lenders.

How to Fight Fraud at Auto Dealerships

Experian’s advice to defend against fraud at auto dealerships is simple: confirm identities upfront using multiple data sources. “Verify income and employment early, validate trade-in vehicle details so clean deals move quickly, and flag anything that doesn’t add up,” Maguire said. 

“Dealers who take the time to leverage advanced fraud-detection tools to assess shoppers’ incomes and identities are best positioned to avoid major losses and reduce friction during the car buying process,” he said.

Some Good News for Auto Lenders

There is some good news from auto lenders. New, 30-day delinquencies decreased for auto loans to 7.7% from 7.8% in the fourth quarter of 2025, KPMG reports. But serious delinquencies, 90 or more days late, were up to 5.2% 

Interestingly, loans on new cars increased the most for buyers with credit scores of under 620, so subprime borrowers were out buying new cars in the fourth quarter of 2025. 

The Bottom Line

Auto dealers face fraud at their dealerships, and a single instance of fraud costs them $10,000 to $20,000 in losses. In the most common type of fraud, scammers used forged income documents and false income claims to get approved for auto loans. Synthetic identity fraud is a fast-growing type of identity fraud at auto dealerships.