SHOPSMART AUTOS – CUSTOMER INFORMATION – MARCH 31, 2021
Don’t take car until loan is final
It can seem like a great perk: Driving your new or new-to-you car home while a dealer works out the financing. But it can turn out to be a bad idea. That’s because the terms of the loan deal discussed at the dealership can change to a much higher rate after a buyer takes a car home. Unscrupulous dealers may try to bring buyers back one or more times to sign new, costlier deals — a practice known as “yo-yo financing.” Prodded by state attorneys general and consumer groups, the Federal Trade Commission is considering whether to propose new regulations to address the practice. The National Automobile Dealers Association said in a statement that it’s important for regulators to distinguish between “fraudulent yo-yo financing” and what it calls “legitimate conditional sales or spot deliveries.” NADA calls yo-yo financing “abusive spot deliveries” and says the practice already is illegal in every state because it is deceptive or misleading. In such cases, the dealer acts in “bad faith,” such as knowingly quoting a rate that won’t be approved for that buyer, failing to say the deal being discussed is conditional and refusing to give back the down payment or trade-in if the deal is not approved. And those are the exception, said NADA: “Tens of millions of conditional deliveries occur nationwide each year without any hint of problems for consumers.” But Dana Manner, a Miami auto fraud lawyer, says about a third of his practice involves yo-yo financing cases. And Phil Reed, Edmunds.com’s senior consumer advice editor, says the shopping service has gotten a “steady stream” of complaints about it for years from people with “mid-tier” credit. The Center for Responsible Lending told the FTC in 2011 that 27% of people who contacted one of five groups that handle auto finance problems reported being victims of yo-yo scams. More than half of these 590 people had trouble getting their down payment or trade-in vehicle back, or had the dealer threaten legal action against them if the new car was not returned. Most signed new loan contracts at higher rates. Dealers urge you to take cars home to keep you from going to a rival and to get you used to driving it, says Reed, who wrote a book in 2003 after working undercover as a car salesman. Dealers argue that they have no interest, however, in putting people in cars they can’t afford, in part because the value drops precipitously once a car is driven off the lot. They say they do conditional deliveries to accommodate consumer preferences.
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