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.)