I’ve already spoken to the very real and prevalent issue of online scammers targeting the used car market. The internet is a certainly a jungle when it comes to vehicle fraud, making even well-established names such as Craigslist and eBay a haunt for shady practices.
The general rule of thumb is to stay local and only deal with individuals you speak with in person. For lots of people, that means used car dealerships are go-to; the official nature of their operation providing a bit of peace and mind. What’s more, used car dealerships typically offer finance, which is a pretty big draw if you’re short on funds.
So off to the dealer they go, selecting a car, finalizing paperwork, sitting nervously on the edge of their seat as the finance is accepted, and then breathing a sigh of relief as everything pans out. The dealer then shakes their hand and waves goodbye as the proud new owner drives off down the road. Only the finance hasn’t actually been confirmed yet, and the dealer actually has no intention of putting it through, either.
Only a few days later, the dealer calls the buyer and announces that the finance hasn’t actually panned out. The dealer will insist that the only way to continue is for the buyer to pay a larger deposit and to tack-on a higher interest rate to repayments. None of this is actually true, though. It is, in fact, a scam called yo-yo financing; a scheme to extract more money from unsuspecting buyers that do not understand the legality of higher purchase.
Ultimately, if the buyer refuses to pay the additional sum of money/higher repayments, the seller often will repossess the vehicle. But this entire operation is illegal.
Yo-yo financing targets individuals with poor credit ratings. Dealerships know full-well that the buyer will struggle to get credit elsewhere and is liable to panic when pressured into paying more money. By leveraging this information, they fool buyers into accepting the blame for an issue that isn’t even their own. You see, once a contract has been signed and finance approved, any later issues with financing are the problem of the seller, not the buyer. Finance companies do not simply change their mind, and if there are genuine problems, then the seller must seek a new finance company and allow the buyer to repay on the same terms.
So why would a dealer allow a buyer to drive off with a car when the finance was not approved? Good question. Let me explain.
Yo-yo financing is also sometimes called spot delivery, but that name isn’t strictly accurate. Yo-yo financing is actually a byproduct of spot deliveries, which is itself a controversial sales method by used car dealers. Essentially, used car dealerships allow new buyers to drive away in vehicles when the finance has not actually been confirmed because they believe it to be an attractive arrangement for the buyer. It is literally an on-the-spot delivery of a new car.
The logic from the dealership’s point of view is to sweeten the deal for the seller. Consider how many customers would walk away after being told that the dealership needed to get an approval from the bank before delivering the vehicle - that typically takes 48 hours or more - and that they should return in a couple days?
But the bottom line is that if you have accepted a spot delivery (which we do not recommend), the seller has guaranteed your finance, and regardless of whether it has actually been accepted or not, your agreement remains bound by law, whatever the outcome. The seller is culpable, so do not allow yourself to be pressured into additional payments. Always be prepared to seek legal counsel if you feel unable to communicate your understanding of the law.