"Spot delivery" by auto dealers can lead to some sad situations. Better Business Bureaus report an increase in complainants who were asked to return their new car because the financing they thought was assured had "fallen through." Their only option, the dealer said, was to make an additional down payment and/or agree to a higher interest rate to obtain new financing. Their traded-in vehicle had been sold so they had no other recourse.
What went wrong? Typically, the consumer signed a financing contract with the dealer without fully understanding the terms, or the contract was incomplete or not in writing. The customer assumes that the credit deal is finalized and the car is theirs. The auto dealer delivers the vehicle "on the spot" and permits the customer to take possession of the car.
Some weeks or even months later, the dealer contacts the customer to advise them that their financing plan was not approved and that they must agree to new financing – at less favorable terms – or return the car. This practice is called "yo yo" financing. The dealer stands accused of not having properly disclosed that the credit deal he originally sold to the customer was conditional on the approval of the application.
Not all deals in which a credit application isn’t approved is a scam. Sometimes a customer does not have strong enough credit to quality for the most attractive financing offers or has provided incomplete or false information on the credit application. This does not pose a problem if the auto dealership has awaited approval of the credit application before letting the customer take possession of the car.
There are many upstanding auto dealerships that never engage in these or any other shady tactics. However, "yo yo deals" are a common enough practice that some states are enacting laws to protect vehicle purchasers from "spot delivery." To help ensure a satisfactory car-buying experience, the BBB advises car shoppers to
- Select a reputable auto dealer. Contact the BBB for a reliability report on the dealership before making a purchasing decision.
- Shop for financing before visiting dealerships. Check with your bank, credit union and other lenders to find out how much credit you may be offered and at what terms.
- Truth-in-lending laws require the auto dealer to provide a written disclosure of the terms of the sale and credit offer. Compare that to what you have been offered by other lenders.
- Remember, it is not in the dealer’s best interest to shop for the best credit terms for you; that’s your job!
- Make sure that any warranty claims, financing terms and oral promises by the sales person are put in writing.
- Carefully review all documents and sign them only if you fully understand every provision. Make certain both parties sign the documents and obtain copies.
- Do not drive the car off the lot unless your financing is approved and secure.
When shopping for a new car, it is always a good idea to comparison shop, carefully think things through and resist being rushed into making a hasty decision. Remember, there is no three-day cooling off period!