Yo-yo financing is sometimes a result of spot delivery purchases in which a buyer uses in-house financing and drives off the lot with a new vehicle before the actual deal is finalized. This potential scam occurs in Minnesota and throughout the country and leaves subprime borrowers in a vulnerable position.
Spot Deliveries
Spot deliveries in themselves are not necessarily a scam. This term refers to a buyer who makes a purchase “on the spot” and agrees to certain financing terms. However, this type of financing deal can cause havoc if the borrower is not actually approved at the original terms. The dealership may include language in the purchase agreement that states that the financing terms are conditional upon the lender’s approval.
How the Scam Works
Typically when a yo-yo scam is being conducted, the dealer sells the buyer a vehicle under a particular payment plan. The buyer leaves the lot and thinks that he or she is now the proud owner of a new vehicle. Several weeks may pass before the dealer contacts the buyer and informs him or her that the financing company rejected the customer’s credit application. The dealer then states that the buyer must return the vehicle or agree to a new finance plan that will cost a lot more in the long run. They may change the interest rate, ask for a larger down payment or both.
Some dealers may employ aggressive tactics. For example, they may take steps to repossess the vehicle if the buyer does not quickly agree to new, less favorable terms. Others may threaten to report the vehicle stolen unless a new contract is signed immediately. Even if the buyer returns the vehicle, some dealers may try to keep the down payment the buyer made.
Vulnerable Consumers
Individuals who have poor or no credit are more likely to be victimized by this scam. National surveys have found that more than one-quarter of car buyers surveyed dealt with a yo-yo financing scam within the last year. After the buyer becomes familiar with the vehicle and likes his or her new purchase, the buyer may be more willing to agree to new terms even to his or her own detriment.
Defenses
Dealers may avoid liability by claiming that the deal is conditioned upon financing. This allows them to dispose of the vehicle on the spot even though the loan has not yet been approved. Language of this nature may be included in the purchase agreement. If the dealership does not make enough money on the sale, this type of language may give it the right to reframe the deal with terms that are advantageous to the dealership. While many consumers may not understand that the dealer can effectively revoke the sale in this manner, they are generally obligated to the contracts they sign.
How to Avoid the Scam
The easiest way to avoid a yo-yo scam is to get credit for the purchase outside the dealership. Unfortunately, consumers need to know that dealer financed terms may be revoked and dramatically increased. Therefore, it is easier to shop around for your loan at rates that are clear and definite. In general, avoid using wire transfers when purchasing a vehicle, and be sure that you see the actual vehicle that you are buying before leaving the lot. Getting a trusted mechanic to inspect the vehicle can help you avoid unforeseen issues with the vehicle. Be hesitant to sign agreements that state ambiguous terms such as “as low as” or “a minimum of.” Another warning sign of a bad deal is the term “subject to final approval.”
A lawyer can also review a vehicle purchase agreement to look out for any provisions making the purchase provisional based on certain information, such as financing decisions. This can help you make an informed decision about the risks and benefits of the financing decision.
