Don’t let Yo Yo financing car dealer scam you in and vanish
If you buy a new or used car, and the dealer tells you a few days later that there’s been a financing problem, warning bells should go off, you may be the target of a funding scam called “yo yo financing” when you are dragged back into the dealership to renegotiate the offer at a higher interest rate and worse terms for the loan.
These scams are a variation on what is referred to as a “spot delivery” in which the buyer speeds off in a car while the dealer proceeds to shop for its financing. You will prevent being placed on the spot and falling victim to misleading practises by knowing yo-yo financing and what to look out for at the dealership.
In yo yo financing buyers at risk
Yo-yo funding “is a big issue for dealerships that appeal to borrowers with lower incomes, most often for people of colour,” says Rebecca Borné, senior policy advisor at the Center for Responsible Lending.
Rosemary Shahan, founder and president of the non-profit consumer advocacy group Consumers for Car Reliability and Safety, calls yo-yo financing scams a “epidemic.” She says that traffickers frequently target people who are poor or seem uninformed: young people or the elderly, minorities, new immigrants, and even members of the military.
How scams with yo yo financing work?
Until they have finalised the funding, dealers use spot deliveries to take customers out of the demand for a vehicle. The laws for spot distribution differ greatly from state to state, but when the procedure is used properly, dealers can easily bring a car to customers, even when banks are closed, such as at night or on the weekend.
In yo-yo scams, though, the dealer gives the customer the idea that the vehicle is theirs to hold. Days later, to compel the buyer to return to renegotiate the offer, the dealer could use predatory or misleading conduct. Dealers threaten to repossess the vehicle or report it as stolen in certain instances. After declining to take the car back to the dealer, Shahan says she’s even learned of arresting auto-theft customers.
According to CRL, yo yo financing scams that renegotiate end up with a cost on average five percentage points above the initial loan. Many who are victims of this practise are mostly “those who are least willing to shoulder the burden of higher interest rates and do not have a lot of negotiating power to get a fair deal,” Borné says.
But to secure themselves, there are steps buyers should take.
Warning signs of yo yo financing
“They know too much about you once you fill out the credit application” and can then target victims, says Shahan. So being alert to early signs of a potential yo yo financing scheme for all shoppers, especially those with poor credit, is critical.
- To look out for these red flags, Borné and other professionals say:
- With some fields left vacant, you’re asked to sign a sales contract.
- What interest rate you’ll be paying is not obvious.
- You’re asked to sign a form that says “conditional” is the contract.
Or, without any arrangement at all, the dealer lets you drive away in the car.
Don’t be a buyer
Yo-yo financing, however, is easy to stop. To prevent dealer financing, one surefire defence is. Before you go to the car lot, you can get a preapproved vehicle loan from an independent lender. Or, save up and pay in cash if you’re buying a really cheap used car.
Additional preventive steps are recommended by the Consumer Financial Security Bureau:
- In order to ensure you understand the terms of your offer, check the sales contract.
- Make sure you have copies of all the documents signed by you and the dealer and fill in the blanks of the contract.
- Before you drive the vehicle off the dealer’s lot, check that the loan rate is final. If you have just bought a car and the dealer tells you later that there is a financing problem, proceed with extreme caution.
If you’re a victim
Next, check all of the documents the dealer has obtained from you. See if a form indicating that the sale was conditional was signed by you. If so, Borné advises you to simply return the car and “unwind the deal.”
By this point, however, many individuals are emotionally invested in the vehicle and want to keep it. One solution is to demand the lender’s letter of refusal of financing. You could search and try to set up a yo-yo scam if the dealer cannot supply it.
Shahan says it’s time to find an attorney if the dealer continues, or is threatening you. Visit the site of the National Consumer Advocates Association, which lists lawyers who specialise in cases of auto theft. The problem can be fixed without any damage to your credit when treated correctly by an attorney, Shahan says.