Yo-yo financing is a fairly recent quasi-scam. It is more common with dealerships dealing with low credit scores and only when you opt for dealership arranged financing. It also goes by the name “spot-delivery.”
The Basics of a “Yo-Yo” Scam
Many dealerships are advertising financing for any credit score. These dealerships have a network of partner lenders. When you sit down with the finance person, they will run your loan application past their lenders until they find one willing to offer you a loan. With yo-yo financing a shady dealership will tell you that your loan is in place and send you home with your new car. The problem is that the financing is NOT finalized, the dealership is just hoping that it will be.
Called Back to the Dealer to Pay More
On occasion, your loan application cannot be accepted under the terms the dealership quoted you or a lender cannot be found to underwrite the loan at all. When this happens you will get a call telling you that something went wrong. Usually it is that you have to put more money down or the interest rate is going to be several points higher than expected. You are then given a choice, either return the vehicle you have been driving, with no guarantee that you can have your trade back, or agree to the new terms.
What if No Lender Approves the Loan?
The worst case scenario is that you will not be approved by any of the dealership’s partner lenders. In that case, you will required to bring the vehicle back. In most cases, you will not get your trade back and may have to pay the dealership for the use of the car! If that weren’t enough of an issue, many buyers drive hundreds of miles, even crossing state lines to find just the car they want at the price they can afford. Bringing back the car could be a costly endeavor, not to mention lining up a ride home.
How to Protect Yourself from a Spot Delivery Scam
The Consumer Financial Protection Bureau is working to end this practice, but it is not illegal at this time. It seems to be especially prevalent among junior military personnel and first-time car-buyers who don’t have the experience to recognize the “fishiness” of the situation. Your only real protection against this scam is to ask if the financing is final before you sign any paperwork. If the dealership tells you that it is, demand to see that in writing. If they admit the financing is conditional, then walk away until it has been finalized.