Yes. It happens every day. You buy or lease a car from a dealer. He calls you a few days or a couple of weeks later and wants his car back, or asks you to sign a new contract with higher payments. Is this a scam? Is it legal?
First, let’s understand some fundamentals of car financing. Car dealers don’t finance or lease cars themselves. When you sign a contract to buy with a loan, or to lease, the dealer attempts to find a finance company or bank that will approve you under the terms you agreed to in your contract. Somewhere in your contract or in a separate document, often called a bailment agreement, this condition is spelled out.
Essentially, your contracts says that you agree to let the dealer arrange your car financing on your behalf, and if he can’t find a finance company or bank to approve you and accept your loan or lease, then the deal isn’t final. In this case, you will either be asked to return your car, get a co-signer, or sign a new contract for new terms that are acceptable to a finance company the dealer has contacted. Most likely, the option to return your vehicle won’t be mentioned because the dealer does not want to lose his deal if at all possible.
This is perfectly logical since the dealer wants to be paid for his car and if a finance company can’t be found who will accept the deal and pay him, he doesn’t get paid and the car still belongs to him.
We often see complaints from car buyers who are in this situation and they ask if they can simply keep the car and refuse to sign a new contract asking for more money. They assume that because they’ve signed a legal contract, the deal is done and they get a free car. Sorry, but that’s not the way it works. A car dealer simply can’t let you continue to drive his car when he hasn’t yet been been paid. You would not be able to register or get title to the vehicle.
Normally, a dealer will do a quick credit check on potential customers who appear to be serious about buying or leasing. Although dealers don’t have a say in whether a customer will be approved for a loan or lease (the finance company does this), they want to weed out “roaches” (customers who have horrible credit scores who will never be approved by a finance company), and do not want to waste time on deals that won’t work out.
If a customer has a high credit score, say 720, the dealer knows that any lender or lease company he works with will approve this customer. In this case, there will be no problem with financing and almost no chance that he’ll have to ask for his car back.
Car buyers should already know their credit score before they go car shopping. Get a Dark Web Scan and your Experian Credit Report for FREE! Don’t let car dealers surprise you with information about you that you don’t know about yourself.
Now let’s consider the case in which a customer has a lower credit score, say 620 or less, which is not terrible but not great either. The dealer knows this is a potential problem when he sees the customer’s credit report. There is a good possibility that this customer will be refused by lenders at the agreed-to contract terms. However, the dealer doesn’t want to lose this deal. What does he do?
He hopes he can push it through and doesn’t mention the potential problem to the customer. He hopes maybe he will get lucky and the deal will be approved.
The dealer tells the customer that the deal is a go, the customer signs a contract with the agreed-to terms, and the salesman allows the customer to drive away in the vehicle even though the dealer still owns the vehicle (this is often called a “spot delivery”) — because the loan or lease hasn’t yet been approved by the finance company.
More than likely the financing will be refused by the finance company because the customer has a poor credit history and represents a high risk. The finance company goes back to the dealer and tells him that the only way the deal can be approved is if the customer agrees to a higher interest rate, a higher down payment, or higher monthly payments — or get a co-signer.
The dealer is hoping that he can convince his customer to accept the new deal with higher payments. He hopes that the customer, who has been driving the car now for a few days or a couple of weeks, will have fallen in love with the vehicle and will happily agree to higher payments.
If a customer has a flawed credit history and low credit score he will almost certainly be required to pay higher interest rates for any of loan or lease, regardless of documents signed in a dealer’s office that might indicate better rates and terms.
If a dealer suspects the customer doesn’t know about his poor credit score, he may mislead the customer to think he’s been approved, when that is not the case, in hopes of somehow saving the deal.
There have been cases in which unethical car dealers have attempted to extract extra profit by telling customers that more money was required based on (false) low credit scores. If customers don’t know their own credit scores, this scam can have a high probability of success.
Therefore, it is always wise for automotive consumers to know their credit score before entering a car dealer showroom. Find your FICO credit score now when you check your credit report for $1 at Experian.com! Don’t let car dealers know more about your credit than you know.
If your car dealer wants your car back, or asks you to sign a new contract, make sure you know exactly why he’s asking and understand that you can either sign the new contract or return the car. Know your credit score ahead of time so that you do not get into this kind of embarrassing situation.
If your dealer can’t get you approved for a car loan, try to get your own loan at a bank or credit union, or online with a top-notch lender such as Auto Credit Express (see banner below). They work specifically with people who have credit problems.