My Car Financing Fell Through, What Do I Do Now?

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Know your options if your car financing falls through, and spot the red flags to prevent it.

You’ve finally completed the lengthy paperwork for your new or used ride and proudly drive it home in triumph. After a few hours, days, or maybe even weeks, you receive a phone call from your dealer claiming there was a hitch processing your financing. Now you have to return the car or settle for a new set of financing terms. Bummer! Your car financing fell through.

You did everything required by law to buy the car, but your dealer couldn’t process the financing. (Did you miss any red flags?) Sadly, you’re now the victim of a yo-yo scam or spot delivery, which is illegal, and it’s time to get help.

Let’s go over what you need to know and do if your car financing falls through.

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What It Means When Car Financing Falls Through

If you agree to buy a car from a dealership, you might drive it off the lot thinking it’s all yours. Unfortunately, that might not always be the case. While automated systems can provide credit approvals within minutes, some car dealers don’t secure final financing approval before the vehicle sale is negotiated. This causes them to make what’s known as a spot delivery.

Spot delivery is a practice where a dealer negotiates sale prices and financing terms and then sends you home with the vehicle before obtaining a lending offer under the agreed upon terms. Basically you get the vehicle “on the spot” before lenders have agreed to finance the purchase. These spot deliveries facilitate yo-yo financing schemes.

The dealer commences the loan application process and sends you off the lot driving your newly acquired vehicle before the actual financing is completed. This was historically common when the sale took place after normal banking hours, when the loan couldn’t be reviewed and approved by a lending institution. But truthfully, most approvals are automated now, so this is no longer a viable excuse.

Once the lender reviews the application, they may either approve or reject the loan application. If the loan application is denied, sometimes hours or days later, the seller might call you to say that financing couldn’t be processed and you need to submit a new car loan application. This could be for a legitimate reason, perhaps due to a bad credit score.

But when the dealer knows you likely won’t be approved at the original loan terms or rates they cited, this is a scam. They will request that you complete new paperwork and offer a higher interest rate or other less favorable terms.

This yo-yo scheme lets a dealer squeeze extra profit from unsuspecting customers by later threatening to cancel the deal if the additional loan terms are not met. The trick is to make you believe the deal is final so you don’t consider other options, like buying a car elsewhere.

In their initial negotiations with customers, these dealers offer interest rates they aren’t willing — or able — to honor, enticing you into signing a contract without any risk on their part. The dealer may take the exploits further by forcing you to give up more than the purchased vehicle if you can’t meet the new deal. This might happen in several ways:

  • The dealer refuses to return your trade-in vehicle.
  • The dealer refuses to refund your down payment if you’re unwilling to negotiate a deal.
  • The dealer may charge additional fees for using the car.

If the fees date back to when you drove off the lot, rather than when you became aware you had to return the vehicle, you may already owe the dealer several hundred or thousand dollars. The mounting pressure of this situation might push you to agree to renegotiate new financing terms. Luckily, you have a right to have the original deal and all your money refunded without signing a new contract.

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Why Did Your Car Financing Fall Through?

Spot deliveries or yo-yo schemes are frauds that typically happen at smaller used car dealerships, though bigger ones aren’t a guaranteed exception. This situation can be caused by several factors, but it is often not your fault, at all.

Dealers often finance a car loan through the dealership itself with an intention of later selling it to a financial institution. Sometimes, the dealership staff may discover that the proceeds of the deal won’t be as much as they had expected, hence may make the claim that your financing didn’t go through.

Also, your dealer may have pre-approved your auto loan and subsequently denied financing once a bank scrutinized your financial situation. The dealer might have tried to swindle you by changing the financing after you inked the deal, probably in a bid to secure a favorable dealer incentive program extended by another bank, only for them to get caught and declined.

Your Options When Car Financing Falls Through

While there could be legitimate reasons for your car financing falling through, what options are available if you’re the victim of a yo-yo scam? Here’s what you can do when car financing falls through.

Return the car

One of the easiest things to do when financing falls through is return the car to the dealership, as you’ve been asked to do. This could mean potentially relinquishing any investments you made in the car.

One way to prevent losing money from your investment is by purchasing a cancellation policy, if it’s offered in the state you live. This allows you to return the car for any reason, typically within two days of purchase. In that case, your dealer must provide a full refund for fees incurred, including registration fees, sales tax, and your deposit. You should also receive the fair market value of your trade-in if the dealer already sold it.

Source financing on your own

You may attempt to secure financing on your own if your dealer-negotiated financing falls through. You’ll need to do this quickly since your dealership will be pressuring you to return the vehicle. Your options may include private lenders and institutional lenders. You might stand a higher chance of obtaining financing from private lending websites if big banks won’t strike a deal with you.

Take legal action

When your auto financing falls through, the problem — often relating to your credit score — could be because a dealer erroneously handled your financing. In this case, it isn’t your fault, and you might want to take legal action against your dealer since they are liable for the situation. You have the right to demand a full refund of all expenses incurred, following the yo-yo fiasco of approved-then-denied loan financing.

Ignoring the problem and failing to legally pursue the dealer will probably result in the car being repossessed and the recovery and towing fees charged to you. Don’t use empty threats or violence in an attempt to cow your dealer into compliance.

Seek legal help

It’s important that you recognize a dealership is doing illegal and unethical business activities. If you choose to pursue legal action, you’ll need to hire a lawyer to help with the entire process. A legal representative can explain what happened, provide legal advice, and guidance on the way forward. If you’re pursuing compensation, this means litigation and initiating a court case. A consumer protection lawyer might be able to help you if a dispute arises.

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Understanding Your Rights

It’s inconvenient and disappointing to have to return a vehicle to the dealership. As a disappointed car buyer, you’re not only left without a car, but also with additional fees to cover. To avoid this inconvenience, it’s imperative to understand your rights when it comes to dealer financing.

If your dealer conditions the car sale before securing financing, it’s illegal for them to:

  • Tell you either in writing or verbally that the sale has been finalized or completed before financing has been approved by a lender.
  • Refuse to revoke all agreements if the financing isn’t completed within 20 days from you driving the vehicle off the lot.
  • Fail to give back your down payment or trade-in vehicle.
  • Sell or get rid of your trade in-vehicle before financing is finalized and the sale completed.
  • Threaten to repossess the vehicle.

How To Protect Yourself From Yo-yo Financing

There are steps you can take to protect yourself from falling victim to a yo-yo scheme.These preventative measures include:

  • Read everything you sign. Sadly, people still sign contracts without reading and understanding the fine print. Sure, reading lengthy contracts can be annoying and time-consuming, but it’s important to understand what you’re getting into. You don’t want to get yourself in murky waters for not taking the time to read through your contract or ignoring a disclaimer.
  • Arrange your own financing. Getting third-party financing separate from the dealer can help you avoid spot delivery scams. Contact your local bank or credit union to inquire about their financing terms, including what interest rates (APR) you qualify for. If you rely on dealership financing, ask for all the paperwork that shows financing is complete.
  • Research reputable dealerships. A quick internet search could help you find reputable dealers near you. You can check their reviews on the Better Business Bureau.
  • Watch out for shady car deals. Some dealerships may entice you into spot deliveries through shady dealings. Dealership staff may insist that your contract will automatically cancel if financing falls through. They may also threaten to withhold your down payment or fail to return your trade-in vehicle if you don’t agree to the new terms.
  • Take your time. Take a cooling-off period before signing any paperwork related to financing. Think through it and don’t let the dealership staff or salesperson rush you into inking your signature.
  • Keep records. Keep a record of all proceeds of the transaction and don’t pay in cash. Ask for a written assurance that your down payment or trade-in will be returned, or you may terminate the deal should financing fall through.
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Research Your State’s Rights

In some states, used car dealerships are required to provide customers with additional disclosures to ensure they receive a fair and transparent deal when buying a car. These rules also ensure car buyers understand their financing options and the terms of the sales contract.

In New York, for instance, used car dealerships must:

  • Provide you with and have you sign a Consumer Bill of Rights. The dealer must also post this document in any office or area where sales contracts are negotiated or executed.
  • Provide a Financing Disclosure Form to customers who finance a used car purchase. The disclosure must capture details like the lowest annual percentage rate (APR) offered by the financing company with similar terms, down payment, collateral, and number of payments.
  • Provide a Contract Cancellation Option that lets you void the contract within two weekdays while giving you time to review the terms and any financing agreement on your own.

Some states also have specific laws dedicated to preventing yo-yo scams and spot deliveries. Consumers are protected by rights should dealer financing fall through and the dealer fails to secure the agreed upon financing within the required time. All states have varying laws, so it’s important to research yours.

For example, here are the rights for New Mexico residents:

  • The dealer must give you the full retail price if they decide to move or sell your trade-in vehicle. The dealer must also cover any losses that occur when the vehicle is in their possession.
  • The dealer must make all payments that come due on your trade-in before financing is actually finalized.
  • The dealer can’t charge you for costs associated with maintaining, repairing, or refurbishing your old car. You must, however, repay the dealer if you cancel the sale.
  • You can void the purchase if financing isn’t approved within the required time and receive a refund of any trade in or money paid.
  • The dealer can’t charge any vehicle use or mileage fees if you rightfully cancel the sale before financing is finalized.

Avoid the Yo-yo Financing Pitfall

With a spot delivery, you gain possession of the vehicle “on the spot” upon making the commitment to buy on installment, but with no defined financing arrangement with a financial institution. If your financing is not approved, you may be in a fix with your dealer and have to either return the vehicle or negotiate less favorable terms.

Don’t let this be your story. Do your due diligence, understand your rights and obligations, and know what options are available if financing falls through. You might be able to come out of the yo-yo financing pitfall unscathed after all.

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