Do not take a car until the loan is final

By Mark D. Quinto Last updated Aug 18, 2021

On-site car deliveries should be approached with caution
Dealers say yo-yo financing is scarce% 2C but consumer advocates disagree
Getting financing quotes before buying a car can help

It might seem like a big plus: driving your new or new car to your home while a dealership works out the financing.

But that can turn out to be a bad idea.

This is because the terms of the loan agreement discussed at the dealership may change for a much higher rate after a buyer brings a car home. Unscrupulous dealers may try to bring buyers back one or more times to sign new, more expensive offers – a practice known as “yo-yo financing”.

Pushed by state attorneys general and consumer groups, the Federal Trade Commission is considering proposing new regulations to combat the practice.

The National Automobile Dealers Association said in a statement that it is important for regulators to distinguish between “fraudulent yo-yo financing” and what it calls “legitimate conditional sales or on-time deliveries.”

NADA calls yo-yo financing “abusive one-off deliveries” and says the practice is already illegal in all states because it is deceptive or deceptive. In such cases, the dealer is acting in “bad faith”, such as knowingly quoting a rate that will not be approved for that buyer, failing to say that the deal under discussion is conditional, and refusing to reimburse the rate. down payment or exchange. if the deal is not approved.

And these are the exception, NADA said: “Tens of millions of conditional deliveries occur across the country every year with no hint of trouble for consumers.”

But Dana Manner, an auto fraud attorney in Miami, says about a third of her practice involves yo-yo financing cases. And Phil Reed, senior editor of consumer advice for Edmunds.com, said the shopping department had received a “constant stream” of complaints about it for years from people with a benefit. “intermediate” credit.

The Center for Responsible Lending told the FTC in 2011 that 27% of people who contacted one of the five groups that deal with auto finance issues said they were victims of yo-yo scams. More than half of those 590 people struggled to collect their down payment or trade-in, or the dealership threatened them with legal action if the new car was not returned. Most signed new loan contracts at higher rates.

Dealerships urge you to take cars home to keep you from going to a rival and to get used to driving it, says Reed, who wrote a book in 2003 after working undercover as a car salesman.

However, dealers claim they have no interest in putting people in cars they can’t afford, in part because the value drops sharply once a car is off the lot. They say they are making conditional deliveries to accommodate consumer preferences.

Regardless of the reason or how often the offers change after customers bring the cars home, it’s clear the dealerships aren’t the only ones taking a risk. Your trade-in may be sold, down payments lost, and using the newly purchased car could cost you a lot more than you expected if the bad results other consumers have experienced happen to you.

Which means bringing a car home before the deal is done is a bad idea no matter how badly you want it and the dealership encourages you. “The dealers want you to invest yourself emotionally and financially in the car,” Manner explains.

Marv Eleazer, chief financial officer at Langdale Ford in Valdosta, Ga., Says there is a responsibility on both sides in what he and NADA say are the rare instances where consumers may be subject to yo-yo financing.

“When buying, customers are often excited about that new car smell and may not listen or notice that the deal is not finalized,” he says. “It is the dealership’s responsibility to strongly emphasize that the car is delivered subject to final approval with a written notice confirming the terms of delivery.”

How Dealer Financing Works

After dealerships have established a credit report of consumers looking for financing, sellers, finance officers, or other managers often estimate what they can offer a person with that bad credit loans"}” data-sheets-userformat=”{"2":513,"3":{"1":0},"12":0}”>bad credit loans based on the credit rating. amount they deposited, the length of the loan and other factors, Eleazer explains. If this initial offer is acceptable to the buyer, the process goes one step further for actual loan approval. Usually, these deals are approved within 15 minutes, he says.

However, buyers with low credit scores often receive a preliminary offer of financing which may depend on proof of employment or other documents, and obtaining these items may take some time. Then the dealership will buy the loan from various sources of finance to get that deal and the amount of profit they hope to get from it, he says. In the meantime, the consumer can take the car on condition.

But if the consumer has bad credit or other issues with their application, the interest rate may be higher than expected, and the dealer may need to ask for more money or take less profit.

In such cases, explains Paul Metrey, NADA’s chief regulatory adviser for financial services, signing a new agreement “with a dealer in the condition of conditional delivery … is completely optional. As a rule, the client is approved according to the conditions submitted “.

Consumer advocates, however, say buyers often think they have no choice but to take the new, less favorable offer from a dealership, especially after they’ve already driven the car and shown it to their family and friends.

The FTC won’t comment on its deliberations, but Malini Mithal, deputy director of financial practices, says that because buying and financing automobiles is such an expensive and complicated transaction … the automobile remains a top priority for the commission. “

How to Avoid Auto Financing Problems:

1) Know your credit score and what’s on your credit report before you apply for financing from a dealership or other lender.

2) Join a credit union and see what loan amounts, terms, and interest rates you can get from there or other lenders before you go to a dealership to buy a car.

3) Do not bring the car home until it is truly yours, i.e. the case is sealed.

4) Consider renting if you must have a car before the deal is final.

5) Consult resources, including Center for Responsible Lending, industry www.autofinancement101.org and the Consumers for vehicle reliability and safety.

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