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Personal Finance > Autos

The 'yo-yo' car sale trap
You thought the new car was yours. Then comes the call a few days later. "There's a problem..."
September 14, 2004: 1:05 PM EDT
By Peter Valdes-Dapena, CNN/Money

NEW YORK (CNN/Money) - You've got your new car. You showed it off to all your friends. You've driven it to work a few a times. You love it. Then you get a scary phone call.

"This is Jim from the dealership. There seems to be a problem with the financing."

You may find yourself looking at a higher interest rate than you originally agreed to, or facing pressure to buy additional insurance products.

If you take a car off the dealer's lot before financing's been approved by the lender, you could get that very disturbing call. If you do, be careful. There's a good chance you're being set up for a scam.


Taking a car immediately after negotiating a deal, but before final approval of financing arrangements, is called "spot delivery." Getting called back in because of an alleged financing issue is commonly called a "yo-yo sales" tactic.

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Essentially, the dealer is getting a second shot at negotiating a deal that you thought was already settled.

Neil Rombardo, a deputy attorney general in Nevada, estimates that he hears from about 15 to 20 customers a year who get that type of call from a dealer. But that number represents a tiny fraction of all the cases that occur in his state alone, he believes, since most consumers never think to do anything other than renegotiate the purchase agreement.

"It's something that happens every day," he said.

If you find yourself in this situation, you shouldn't just go in and renegotiate the deal. First, find out what the options are and be aware that this may simply be a ploy to get you to give up more money.

Re-read your copies of any papers you signed to see what, if anything, your agreement says will happen if the financing falls through.

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In some cases, you will have signed a contingency clause stating that you were being allowed to drive the car pending the approval of financing. If, for any reason, financing isn't approved the dealer can take the car back. It may be best for you to simply allow them to do that.

If there is no such clear-cut agreement, contact the office of your state's attorney general to find out what your rights are. Consumer protection laws vary from state to state.

Either way, be prepared to return the car back to the dealer. The dealer may not mention that you could do that or may even say that, since you've driven the car, you can't give it back.

Prosecutor Lombardo says that you would be well within your rights to do that.

J.A. "Doc" Watson of Humble, Tex., a former auto salesman who now makes his living as a consultant and expert witness for auto dealers and consumers, agrees.

"If the finance contract has not been cashed you can take the car back and unwind the deal," he said.

Just walk away

Being prepared to walk away from the car at least puts you back on an even footing for negotiating a new deal. You may not even want to negotiate a new deal, though.

"If a dealership is willing to do that with you," Lombardo said, "you don't want to do business with them."

At the very least, the people working at that auto dealership aren't too sharp. Auto dealers have access to all of the same credit information banks have, and they should know what their financing partners are willing to accept.

Ben Dickison, finance manager for Kent Brown Toyota in Elmira, N.Y., said that these days there's simply no legitimate reason for a dealership to allow a customer to drive away without approved financing. Even at night and on weekends, automated systems can provide credit approvals for most customers.

Surprise rejections? "I can't imagine it 45 minutes later," he said, much less days later.

In many cases, experts say, a dealership may simply be taking a second shot at pressuring you into a better deal for them. In reality, the deal may never have been submitted for approval.

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"Sometimes the dealer doesn't get the profit they should by their own mistake," said Phil Althouse, a Cleveland attorney who mostly handles consumer fraud cases. "So, they'll make up something and say, 'Hey it wasn't approved.'"

If you get called back in because of an alleged financing problem, ask the dealer for the name, telephone number and address of the lending institution that rejected the financing and the name of someone there that you can talk to there. If your financing was actually rejected, you have a right to speak to the financing company about it.

Avoiding the yo-yo

There are several things you can do to make sure you don't get into a situation like this. For starters, never drive a car off the lot without approved financing. If you can't get immediate financing for any reason, just wait until the financing is approved. Better yet, arrange your own financing before going the dealership.

Make sure you read, or at least carefully skim, every document you are asked to sign when purchasing a vehicle. Also, ask to take home a copy, front and back, of everything you've signed.

An unscrupulous dealer may tell you that the contracts contain propriety information, so you can't have a copy, said attorney Althouse. Wrong answer. You have a right to a copy of any document you've signed.

Finally, never sign any documents that aren't completely filled in. If there are spaces that are left blank because they're not relevant to your transaction, put a line through them, said Althouse.  Top of page

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