How to Avoid Yo-Yo Car Financing

If you have poor credit scores you could be the target of yo-yo financing. Find out how to protect yourself.
How to Avoid Yo-Yo Car Financing

When people with bad credit walk into a dealership they usually tend to have the mindset that they are going to be turned away immediately. When they happen to walk into a dealership and talk to a salesmen that is promising them the ability to drive a car home today they get giddy – and for a good reason. Unfortunately, when things seem to be too good to be true, they usually are.

Over the years, there has been a new tactic that some car salesmen use to get more money out of unsuspecting borrowers. This method is called “yo-yo financing”, and it is illegal. There are some dealerships throughout the United States that will tell a customer they can take the car home while their loan application is being processed by the bank, and all they need is your signature on the documents. What consumers don’t realize is that the paper you signed is a document stating that you will bring the car back if the car financing falls through.

Generally, what happens is that a week or so later you will get a call from the salesmen telling you that you were not approved because of your poor credit scores and you need to bring the car back into the dealership. When you do this, the salesmen will work up another financing deal, typically requiring more money down or a higher interest rate.

FTC Gets Involved

Yo-yo financing is not only illegal, but it’s an extremely deceptive and fraudulent way to get people into vehicles. Unfortunately, the car buyers with bad credit tend to be the main target for these crooked salesmen, and the FTC is conducting an examination into car dealerships using these tactics.

Massachusetts Senator, Ed Markey, has sent a letter to the Federal Trade Commission Chairwoman Edith Ramiriz, requesting a thorough investigation of the matter. The Senator stated in this letter that the interest rate mark-ups and higher down payments “cause significant and unnecessary increases in the cost of an automobile for average Americans, and suggest that some dealers may be engaged in unfair or deceptive trade practices that may be in violation of some of the federal laws within the Commission’s jurisdiction.”

After receiving the letter from Senator Markey the Assistant Director of the FTC’s Bureau of Consumer Protection, Malini Mithal, stated that they were aware of the issue and they will be looking into any data they have that states that these issues do or do not exist in the car buying industry.

Avoid Being the Next Victim of the Yo-Yo

Before you walk into your local dealership you should always pull your credit scores and report. This will give you an idea as to whether you are getting a deal that you should take, or a deal that you should run away from. Once you have this information you should talk to other lending entities, and not rely on the dealership for financing.

Obtaining a pre-approval is one of the best ways to avoid any financing scams that the salesmen may try to throw your way. You can look for loans at:

  • Banks
  • Credit Unions
  • Online Lenders
  • Auto Finance Companies

If you have less than perfect credit, you may want to steer clear of banks and credit unions because these entities tend to require that you have good to excellent credit scores. Fortunately, the online lenders and auto finance companies, that Auto Credit Express can match you with, will be able to work with customers that have the worst of credit to obtain special financing auto loans.

If you decide to go with the dealer’s financing, before you sign on any dotted line, be sure to read every piece of paperwork that is put in front of you. Under no circumstances should you rely on a dealer’s verbal promises. If they say you’re getting an add-on feature for a discounted price, check that it’s true, and if they tell you that the loan has been approved for a set price and payment, double check to make sure that those figures are printed correctly on the documents.

As We See It

Yo-yo car financing is illegal, and an unethical tactic to use on trusting consumers, but it’s happening all over the map. Don’t take the keys to your new vehicle until you are 100% that the financing has been approved at the terms and rate you discussed with the salesperson. If they inform you that the financing has not yet gone through because the bank is closed for the evening, or the weekend, but you can still take the car home; you could be the victim of a yo-yo financing scam.

Save yourself the hassle, stress, and money by securing your auto financing first with Auto Credit Express. Even if you have a credit score under 500 and only have a $500 down payment, we can get you approved for an auto loan. You will never have to worry about having to bring the car back and draw up another contract, because our dealers and lenders get it done the first time. Get started today by applying with our online car loan application.

Posted on October 26, 2013 by in Auto Loans
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