Car salesmanHave you ever jumped the gun at a stoplight -- rolling into the intersection before the red light turns green? You might get away with it. Then again, you also risk getting a ticket.

Something similar can happen to car shoppers, too. Only the risk isn't getting caught in a moving violation -- it's getting entangled in a money violation.

It's called "yo-yo financing," and it's what happens to car buyers (particularly ones with so-so credit histories) who take possession of an automobile before their financing arrangements are complete. If their financing falls through, dealers can pressure the buyer into a revised deal with extra costs or fees -- or move to repossess the car.

The consequences of this dubious dealer practice are no fun: Either you pay more to keep the new car you thought you'd already bought -- or you lose it. It's an embarrassing, and potentially expensive, problem.

How Dealers Catch You in the Trap

The "yo-yo" is a byproduct of a dealer practice called spot delivery, in which a shopper is sent home in a new car on the same day without having to wait for formal financing approval.

Philip Reed, of industry-watcher Edmunds.com, recently noted that dealers like spot deliveries because they quickly turn shoppers into buyers. It's an effective sales tactic, and often a harmless one.

But, Reed says, consumer protection advocates have long tried to regulate the practice because it leaves buyers, particularly those with less-than-perfect credit, vulnerable to abuses.



What kinds of abuses? Typically, something like this happens: You're at a dealer and you decide to buy a car. You sign some paperwork and maybe leave a down payment, and then drive the car home the same day. You think you're done: Happy new car!

But then, a few days later, the dealer calls with sad news: Your financing application was turned down. If you want to keep the car, you'll need to arrange other financing at a higher rate. You might even need to increase your down payment. If you don't, the dealer might tell you they'll repossess the car -- or maybe even report it stolen.

State laws vary: In some states, you can simply give the car back and get a refund. But in others, you might be liable for the complete balance due on the sale -- which leaves you open to the yo-yo problem.

Dealers say that this situation is a byproduct of the fact that many cars are sold at night and on weekends, when financing offices are closed, and not usually a scam. But dealers see an awful lot of financing applications. They should know before you leave the dealership whether yours is likely to be approved.

Simple Steps to Keep from Getting Snared

It's not hard to protect yourself from a yo-yo financing mess -- if you know what to do in advance. Reed's Edmunds.com colleague Carroll Lachnit says that the keys to staying clear of the yo-yo trap are simple:

  • Get financing before you shop. With pre-approved financing, you know what you'll be paying every month, and what the fees will be. It takes the whole financing question right out of the dealer's hands. This is especially important if your credit report has a few dings -- if you're in "subprime" financing territory, you're particularly vulnerable to the "yo-yo" problem. Your bank or credit union will be happy to help you arrange a car loan, so make this your first stop. Even if the dealer offers you better terms later on, you'll still have a financing plan to fall back on.
  • Always read the contract. "Car buyers should always get every element of their deal in writing," Lachnit says. Then, read carefully: Buyers should be especially wary, she notes, of any conditions in the contract that might allow the dealer to rewrite the deal or add extra charges after the sale.

Either way, the easy way out is to arrange your own financing before you shop. That way, you know what you can afford, and you know your loan options in advance. Ultimately, this will keep you free and clear of the yo-yo financing trap.


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Ronie Barcoma

Once you are trapped there is no way out. " It's called "yo-yo financing," and it's what happens to car buyers (particularly ones with so-so credit histories) who take possession of an automobile before their financing arrangements are complete. If their financing falls through, dealers can pressure the buyer into a revised deal with extra costs or fees -- or move to repossess the car. " Very tricky for some car dealers. A big help to enlighten the readers. http://www.iquestintl.com

July 01 2012 at 9:50 PM Report abuse rate up rate down Reply
cxw2012neusoft@163.com

aaaaaaaaaaaaaaaaaaaaaaaaa

May 22 2012 at 1:32 AM Report abuse rate up rate down Reply
1 reply to cxw2012neusoft@163.com's comment
Ronie Barcoma

Once you are trapped there is no way out. " It's called "yo-yo financing," and it's what happens to car buyers (particularly ones with so-so credit histories) who take possession of an automobile before their financing arrangements are complete. If their financing falls through, dealers can pressure the buyer into a revised deal with extra costs or fees -- or move to repossess the car. " Very tricky for some car dealers. A big help to enlighten the readers. http://www.iquestintl.com

July 01 2012 at 9:51 PM Report abuse rate up rate down Reply
jamestcap

Has anyone tho't of saving the money in advance and paying cash? The monthly "payments" are less, when interest rates are high a LOT less. You can get started with an older car, you know the ones that the kids put the "don't laff it's paid for" signs on. You might feel a little silly at first but thereafter it's clear sailing.

May 14 2012 at 11:36 AM Report abuse rate up rate down Reply
arenadood

Any time we have bought a car we went to our bank and got a pre approval for a car loan. Not only is this guaranteed but you know how much in advance you can spend. Do not tell the dealer you are pre approved, just work your best deal then when you decide to buy then tell him your bank has already set up the financing. They may not be happy but their job is to sell a car and get it off the lot quickly.

May 11 2012 at 11:57 AM Report abuse rate up rate down Reply
WashingtonDC

Yeah... you'll report it stolen???? And then I'll pay you a visit when you get off work in the parking lot. Hope your paycheck covers your new found ass kickin

May 11 2012 at 8:24 AM Report abuse rate up rate down Reply
tybeezy2

This Happened to me once and I got the dealer good! I told them I was out of town and wouldn't be home for two weeks, that said that fine bring it back then.. After driving all around southern california for 2 weeks and looking for another car I found a dealer that approved me for the same car that was fully loaded. i took them the car back with 6,000 miles on it. They couldn't believe I put 6k on a car in two weeks!! I told them I didn't want the new deal and to give me back my dwn payment and I was out!!! Thats how you deal with YOYO financing!

May 10 2012 at 6:58 PM Report abuse rate up rate down Reply
wgraybear

Local Honda dealer tried that on me a few years back, said I didn't qualify for the "zero percent financing". I drove the car back in less than an hour and handed him the keys. Before I could reach the door, he said the dealership would "eat" the deal and give me the financing we agreed upon. If you know your credit rating before you step into the dealership, they can't get away with that. Good car, still have it 12 years later, but I'll never buy another car from there.

May 10 2012 at 3:10 PM Report abuse +1 rate up rate down Reply
majorthomecho

I had a friend who had this happen and she bought the car in the morning on a Monday, but she liked the car so much she endured it. I was in the market for the same make and I can tell you where I didn't go.

May 10 2012 at 8:01 AM Report abuse rate up rate down Reply
SNUFFY

It's easy to sell something if you first give them the product then freak them out by taking it away-happens all the time

May 10 2012 at 6:39 AM Report abuse rate up rate down Reply
rarondini

Guess what? This goes on day in and day out from Florida to Maine and across the country. The only way to stop it is to get pre approved elsewhere before you go in and buy a car and get SPOTTED. Dealers love it and in some cases they already sold your trade at a profit to boot. The most prolific that I witnessed has to be in the Southern U.S., where the elderly are taken advantage of way beyond this practice. Its horse trading but the 21st century version.

May 09 2012 at 4:04 PM Report abuse +4 rate up rate down Reply