Credit challenged consumers should check their sales contract carefully before signing on the dotted line
Sales Contract Questions
Here at Auto Credit Express we always get questions about car finance contracts, but recently we've received a number of inquiries from consumers that go something like this: "What is a conditional sales contract?"
The most common definition is that it's an "arrangement where a buyer takes possession of an item, but its title and right of repossession remains with the seller until the buyer pays the full purchase price." But in terms of an auto sales contract, it can mean something much different.
Spot Deliveries & Conditional Sales Contracts
In the car business, these types of contracts are called everything from "conditional sales agreements" to "conditional delivery agreements."
These types of contracts are the result of "spot deliveries" from car dealers. According to the Center for Responsible Lending (CRL), spot deliveries occur when the "dealer allows (the) car buyer to drive off the lot with the car 'on the spot' when the sale and financing are technically not yet final."
Not all states allow conditional auto sales contracts. Typically in states that allow it, a conditional sales contract must disclose to the buyer any conditions under which the dealer has delivered the vehicle - usually by stating that if the dealer is unable to secure financing for the borrower, the buyer is then responsible for obtaining financing for the vehicle.
A second scenario involves the dealer calling the buyer back into the dealership to sign another sales contract - this one not conditional - usually at a higher interest rate in a practice known as "yo-yo" financing.
Consumers with bad credit need to be aware of this type of conditional car sales contract because, according to the CRL, "car dealers commonly target consumers with poor or no credit standing for 'yo-yo' scams."
The Bottom Line
A conditional sales contract is an agreement in which the borrower is responsible for securing financing for a vehicle, rather than the dealer, if the dealer cannot get the borrower approved. Sometimes this can lead to "yo-yo" financing in which the customer, usually someone with poor credit, has to sign a second contract at a higher interest rate in order to keep the vehicle.
If you are looking for alternative auto financing from dealers trying to pull a fast one on you, consider us here at Auto Credit Express. Our nationwide dealer network can get you financed without pulling the rug out from under you. Just fill out our online application to get started!