Don't Fall Prey to Spot Delivery Scams and Yo-Yo Financing

Don't Fall Prey to Spot Delivery Scams and Yo-Yo Financing

Know Your Rights If You're Asked to Return the Car


You're buying a car and — your credit being what it is — you breathe a sigh of relief as you sign the sales contract. But several days later, the dealer calls to say that the financing fell through and you have to sign a new agreement at a higher interest rate. Naturally, you're confused and don't know how to respond.

You could be the victim of what's called "yo-yo financing." In this situation, a dealer permits a buyer — typically someone whose credit is shaky — to take possession of a car before the financing is actually complete. A short time later, however, the buyer is pulled back to the dealership when the financing falters. He's faced with having to pay higher interest rates and fees. Sometimes the dealer demands a larger down payment, too.

The yo-yo ploy is a byproduct of the "spot delivery" process, in which cars are sold "on the spot" before the financing is complete. Depending on where you live, there might be laws to protect consumers from spot delivery abuses — or not.

Uses and Abuses of "Spotting"
Dealers say spot deliveries are essential to their business and are a clear benefit to a customer who is eager to drive off in a car. Spot deliveries, dealers say, turn shoppers into buyers. But consumer advocates say spot deliveries leave buyers with so-so credit vulnerable to dealership abuses. Consumer protection agencies have long tried to enact laws against the practice of spot deliveries.

The issue arises because most banks can't approve loan applications at night or on the weekends, which is when many cars are sold. With a spot delivery, a dealer begins the loan application and lets the customer drive away in the car. When the banks reopen, lenders review the applications and approve or decline them.

In "Confessions of an Auto Finance Manager," auto finance manager Nick James says that spot deliveries led to some of his worst experiences in a dealership. When he told one young buyer that the financing had fallen through and that he had to return a pickup truck he had just purchased, the man lunged across the desk and tried to strangle the sales manager.

The buyer had already shown the truck to friends and family and had developed an attachment to it, James says in the article. "Now the dealership was taking it away from them. It was an unintentional form of public humiliation."

In a Federal Trade Commission (FTC) roundtable discussion with dealer representatives and consumer advocates in 2011, attorney Michael Beniot said, "Yo-yo financing is a very, very bad practice, and I don't think there's one dealer in the country who would stand up to support it." However, he added that it is a "small subset" of spot deliveries as a whole.

But Chris Kukla, senior counsel for government affairs for the Center for Responsible Lending disagrees. He says that one Raleigh, North Carolina, attorney gets so many requests from consumers for help in untangling such cases that he only takes one in four of them. Because of laws favoring dealers, "every single transaction is a potential yo-yo," Kukla says.

Know Your Rights
Laws governing spot deliveries vary from state to state, Kukla says. In many cases, the standard sales contract contains language allowing the dealer to request that the car be returned within a certain time period if financing falls through.

Under Illinois law, for instance, if the dealership can't find financing at the rate in the contract, it is required to return to the purchaser any down payment or trade-in under the contract, according to the state attorney general's Web site.

Meanwhile, in California, most sales contracts are actually called "conditional sales contracts" and there are several statements in the document noting that the seller is attempting to get the buyer financed "at a speculated rate," says California Department of Motor Vehicles spokesman Armando Botello. However, the contract also says that if the loan is not approved, the buyer is responsible to pay the complete balance due.

Regardless of the letter of the law, Kukla says dealerships can pressure unwary consumers to accept new, more expensive terms using a variety of tactics. Some dealers have threatened to repossess cars, while others even say they will report the vehicle stolen. When a would-be buyer asks to simply return the car, some dealers have demanded high rental fees or charged for excessive wear and tear on the brief period of usage.

The lenient law is a "get out of jail free card for dealers," Kukla says. Furthermore, the dealer should know if he can get financing for a buyer or not since "he does more deals in a week than most consumers do in a lifetime."

Avoid Being Put on the Spot
Botello recommends that subprime shoppers — those with a credit rating under 680 — get preapproved financing to avoid spot-delivery problems. Those consumers wondering if their dealership financing is final should ask to see a copy of the confirmation from the finance company. Also, be wary of signing any additional paperwork or "conditional" boxes in the contract. These might allow the dealer to rewrite the contract under different terms.

But what if the car is already in your driveway and the dealer demands that you return it? A former dealer, who asked not to be named, advises that buyers ask for a copy of the letter denying financing at the agreed-upon terms. This simple request might bring an end to dealer demands. If it doesn't, you can return to the dealership to discuss the situation — but not in the car you bought. The dealer might try to seize the vehicle as leverage for his demands. If the dealership can prove the loan was denied, of course, you have to bring the car back and figure out your next step.

The Final Word
Spot-delivery abuses show how vulnerable subprime buyers can be to dealership scams. But another truth is that a new car might be out of reach until a shopper's credit score improves. There are alternatives, however, including buying an inexpensive older car for cash — and saving up for something better.

To find a dealership that knows how to treat shoppers right, please visit's Dealer Ratings and Reviews.



  • As mentioned in the article, "spot deliveries" are essential to car dealers in terms of selling vehicles. If a subprime customers comes to purchase a vehicle at non bank business hours where the dealer can't get an approval, the dealer is going to make a decision on whether they can get a deal approved. They will try and guess the rate and terms based on experience. Most of the time they get it right. Other times the rate might be higher and even more money down which means the customer has to come back and sign a new contract. Maybe they can't get the deal done at all. But if you were the dealer and a subprime customer wanted to buy a car and you told them that "We need to get an approval from the bank before we can deliver you a vehicle. Come back in a couple days when we have everything all worked out." What do you think the chances are that you'll ever see that customer again? That's right...slim to nil. They'll go to another dealer that will spot deliver the car, and the first dealer just lost a sale. You only need lose a couple deals like that before you'd jump into the spot delivery arena.

  • kyash2909 kyash2909 Posts:

    I've been just victimized by this spot financing crap. I had my misgivings, given my credit (due to job losses and medical stuff) about whether I could be financed. But I thought these computerized systems could provide instant approval. Now this dealer wants us to come back in and discuss a deal with worse terms. They already have our trade. So we plan to sit there and tell them that if they cannot give us back our trade, then they're gonna have to do something for us to give us a similar deal to what we had when we drove off the lot. I have a feeling we're gonna end up talking with the dealer's general manager. How about foregoing a sale if a deal can't be done? Be upfront. Tell me you cannot finance a car for me right now. I don't know about anyone else, but you won't find me running from dealer to dealer if I know I'm not finance-worthy. I'm gonna wait. In other words, don't make promises you ultimately cannot keep. You might make the sale, but you're gonna end up with one pissed off customer.

  • drucifer drucifer Posts:

    As a consumer, you should never accept "instant" delivery of the car, even if the dealership offers it. Once you make the deal, just tell the dealer you will be leaving in your old car (or taking the bus or getting a ride, whatever works) and giving them time to prepare, wash and get the new car in deliverable condition. Let them know you expect the car to be delivered in top, spotless clean, condition and you will be inspecting the vehicle closely when you pick it up in a few days. Last time I bought a car, I did the deal on Thursday and picked it up the next Monday night. That way, you can also double check that the financing went ok when you pick it up. In fact, I would recommend that you personally verify with the financing bank/firm that you have "locked in" financing before taking delivery. Just remember to always take delivery within 3 business days of doing the deal in most states. Usually, after 3 days, it becomes harder to undo a deal if you need to.

  • isellhondas isellhondas Posts:

    There isn't anything sinister about doing a spot delivery. Stores pull your credit and they instantly know what your score is and whether or not you're going to be approved. If your credit is bad or marginal, no smart store will deliver the car until they know for sure. The store where I worked for 13 years never had any kind of a problem. When the customers were in finance we would have the cars washed and ready to deliver. We would insist the customer did a walk around to make sure there was no damage and we would have them sign a form so they couldn't come back the next day and blame a scratch or something on us. Never had a problem. Until a car had been DELIVERED and driven off the lot, the customer can unwind the deal and the stores are well aware of this. Some well meaning friend or neighbor will be quick to tell the customer that they paid too much or that they should have bought something else. Deal with an ethical store and you'll never have a problem!

  • janethnr22 janethnr22 Posts:

    i just bought a used car a day ago but didnt drive it off the dealership. it was late at night and wasnt able to get insurance for it. also the deal was to put $2000 and so far ive only given them $500. I want to back out of the deal as per my stupid fault i forgot to ask about the APR which is 21%!!! they got me good. Could i give it back since i never drove off with the car nor gave all the down payment?

  • stever stever Posts:

    Maybe - I've seen a lot of posts over the years saying that if you don't drive away in the car, the sale isn't final. Never have seen anyone post the "legal" basis for that. Maybe some of our dealer members will chime in. Try calling the dealer and tell them you've changed your mind and want your money back. Depending on the response you get, then I'd call the local consumer protection agency or AG's office for advice. Good luck! Can You Return the Car You Just Bought?

  • isellhondas isellhondas Posts:

    i just bought a used car a day ago but didnt drive it off the dealership. it was late at night and wasnt able to get insurance for it. also the deal was to put $2000 and so far ive only given them $500. I want to back out of the deal as per my stupid fault i forgot to ask about the APR which is 21%!!! they got me good. Could i give it back since i never drove off with the car nor gave all the down payment?
    Maybe or Probably is a good answer. That store will fight like a cornered rat but unless laws vary by state I'm thinking that unless you drive the car off the lot you should be O.K. Prepare to meet a lot of resistance however!

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