Don't Fall For The Yo-Yo Financing Scam

Bertel Schmitt
by Bertel Schmitt

A man bought a new pickup. A few days after he had driven off the dealer lot, he received a phone call. There were a few changes, please bring paperwork and truck back to the dealer. At the dealer, the man was told that the financing had fallen through. The man jumped over the desk, grabbed the sales manager by the throat and started strangling him. Police were called, and the man was taken away in handcuffs.

This story, described in “ Confessions of an auto finance manager” repeats all too often. Many people become victim of what is called “yo-yo financing:”

A dealer permits a buyer with a less than stellar credit to take possession of a car before the financing is actually complete. A short time later, however, the buyer is called back to the dealership. The customer is told that he or she did not qualify for the financing that was applied for. A new contract with new financing at a higher rate is presented. The customer is faced with higher interest rates and fees. Sometimes the dealer demands a larger down payment, too.

According to Negativeequityauto.com, “yo-yo financing is one of the worst problems that plagues car buyers today.”

The yo-yo ploy is a byproduct of the “spot delivery” process, in which cars are sold “on the spot” before the financing is complete. In some states there are laws against spot delivery abuse. In some there aren’t.

Regardless of the letter of the law, dealerships can pressure unwary consumers to accept new, more expensive terms using a variety of tactics, says Edmunds.. Some dealers have threatened to repossess cars, while others even say they will report the vehicle stolen. When a would-be buyer asks to simply return the car, some dealers have demanded high rental fees or charged for excessive wear and tear on the brief period of usage.

Edmunds has this advice to avoid being turned in to a yo-yo:

Before the sale:

  • Get pre-approved financing to avoid spot-delivery problems.
  • Ask to see a copy of the confirmation from the finance company.
  • Be wary of signing any additional paperwork or “conditional” boxes in the contract.

If the cars is already in the driveway, and the dreaded call comes in:

  • Ask for a copy of the letter denying financing at the agreed-upon terms.
  • Return to the dealership to discuss the situation, but don’t bring the car. (If the dealership can prove the loan was denied, you have to bring the car back.)
Bertel Schmitt
Bertel Schmitt

Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.

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  • Chicagoland Chicagoland on May 08, 2012

    "In almost any case the dealer does not want a deal to have to be unwound." - NulloModo True, with reputable new car shops. 'Yo-yo' is more likely with used cars, which can be taken back and resold. It would be risky for a dealer, with a new car, as 'NulloModo' stated. It would have to be sold as 'used' for less $.

  • Jpolicke Jpolicke on May 09, 2012

    If the dealer is trying to renegotiate the payments upward from the original terms, what he needs is more motivation. I suggest explaining that he has an hour to call you back and inform you that the "problem" has been all worked out and the terms will stay the same, or you are going out to conduct research to determine exactly how far a vehicle that he still owns can be driven without any oil in the engine. You'll call him to let him know where to pick up his vehicle.

  • ToolGuy This is the kind of thing you get when you give people faster internet.
  • ToolGuy North America is already the greatest country on the planet, and I have learned to be careful about what I wish for in terms of making changes. I mean, if Greenland wants to buy JDM vehicles, isn't that for the Danes to decide?
  • ToolGuy Once again my home did not catch on fire and my fire extinguisher(s) stayed in the closet, unused. I guess I threw my money away on fire extinguishers.(And by fire extinguishers I mean nuclear missiles.)
  • Carson D The UAW has succeeded in organizing a US VW plant before. There's a reason they don't teach history in the schools any longer. People wouldn't make the same mistakes.
  • B-BodyBuick84 Mitsubishi Pajero Sport of course, a 7 seater, 2.4 turbo-diesel I4 BOF SUV with Super-Select 4WD, centre and rear locking diffs standard of course.
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