Yo-Yo Financing – Your Car Loan Declines, but You Have Already Received the Keys
You are in your mid-twenties, ready to buy your first set of wheels. You anticipate that all you will need to do is walk in, apply for the car finance, be approved, and drive your fresh-smelling car back home. With your fingers crossed, the F&I manager (finance manager) tells you that you are good to go, and you are given your keys. A couple days later, you receive a call from the same dealership telling you that your finance application has been declined. You must return the car as soon as possible or re-negotiate your terms. How is this even possible?
Yo-yo financing, also known as spot delivery, can occur when you are given the car before the finance has been approved by the lender. The F&I manager may have looked through all the paperwork and assumed that the application would be approved, only to find that it wasn't. Although the F&I manager has the final say as to whether the dealership should grant you the car, it is for the banks to approve whether you financially qualify for it. Should the bank find that you do not meet the necessary requirements, you may have to return the car.
You would think that the dealership would wait for the approval before giving clients access to the cars. Still, there are actually a couple of reasons why this spot delivery occurs.
• If you are trying to get a car over the weekend, you may have a delay in response from the bank. If this is an urgent purchase, the dealership may give you the car and wait for the banks to see your application on Monday.
• You may have a poor credit record, insufficient income, or a low deposit. Sometimes information on such things slips through the cracks, and the banks do not make an accurate evaluation. Perhaps you have a higher income now, but the bank is still considering the lower income from a year ago.
• Scams by the dealership. The dealership may be trying to get a few extra coins out of you. Your finance application may have been approved, but they hold onto this and tell you to re-negotiate the terms with a higher interest rate.
HOW TO AVOID THIS?
• Fix your credit score. You can ask for a credit report from the credit bureau. Make sure that all the information is correct. If you paid off any debt in full, make sure that that reflects in the report. Remember all defaults, bankruptcies, or credit inquiries will reflect on your report for a couple of years. So make sure that you are always taking care of your finances properly. You may find that the loan fell through because you mismanaged your finances a year ago.
• Get a Pre-Approval. You don't necessarily have to go through a dealership to know if you qualify for the car. You can go to the banks yourself and get a pre-approval. You can get a pre-approval online and take that information to the dealership as if you are a cash buyer. This helps you in being able to negotiate the best terms.
• Ask the dealership for proof. Should you not have a pre-approval and go directly to the dealership instead, ask them to show you proof of the approvals. Should they say no, then take that as a red flag. Since dealerships apply to multiple lenders on your behalf, you may find that one lender says yes and another says no. Ensure you know of the one that has accepted you and that that lender's information is on the contract with the dealership.
• Most importantly, try not to go home with the car before car finance is approved and all documents are signed correctly.
Not every dealership is out to get you. Sometimes mistakes happen, and it was a minor slip-up of incorrect information used in the application. Perhaps it is not a mistake or a scam, and your application truly was declined. In that case, you can look into getting a deal with private lenders. So whether you are in a hurry or not, it is safer to wait a while longer for the finance approval. Always check the requirements beforehand and prepare yourself adequately.
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