Consumers with less than perfect credit are far more likely to be the targets of yo-yo financing scams

What We Know About Yo Yo Financing

Yo-Yo Financing and Poor Credit

Here at Auto Credit Express we've spent the past two decades helping consumers with bad credit find dealers that are experts in a broad range of credit situations. In most instances, these dealers can offer credit-challenged car buyers their best opportunities to receive an approval for an auto loan.

These dealers offer loans only after examining each buyer's credit profile including credit score, income, monthly expenditures, job and residence stability as well as payment to income and debt to income ratios.

But there are a few dealers (none we work with) that attempt to shortcut the buying process by using a lending scam called yo-yo financing.

Yo-Yo Financing

In a typical yo-yo transaction buyers sign a conditional sales agreement. The word "conditional" refers to the fact that the terms of the contract – down payment, interest rate and loan term – have not yet been approved by a lender.

If the buyer has poor credit (which is the case much of the time) and the dealer can't find a lender willing to approve the deal as written, the dealer then notifies the buyer that in order to keep their vehicle, they'll have to come in and sign another sales contract. In most cases the new contract will have a higher interest rate, a higher down payment, or both.

According to one survey sponsored by the Center for Responsible Lending, borrowers who signed a new contract as a result of this type of bait-and-switch financing ended up with interest rates that, on average, were 5 percentage points higher than the original rate they were quoted.

How to Avoid the Yo-Yo Scam

Here are some tips to help buyers avoid a yo-yo scam:

  1. Never drive a vehicle home until financing is approved
  2. Insist on being given a signed copy of the finance contract (by both the borrower and dealer) before taking the vehicle home
  3. Never sign a finance contract that hasn't been filled out
  4. Never sign a "conditional" contract or a "conditional delivery" form

Finally, buyers should remember the golden rule of car finance: if the deal looks too good to be true (as far as the interest rate and down payment), it is.

The Bottom Line

Car buyers, especially those with questionable credit, are particularly susceptible to yo-yo financing schemes in which a dealer will sign them to a conditional contract and, once they've taken possession of a vehicle, call them back to re-sign another contract with less favorable terms.

One more thing: Auto Credit Express believes car buyers should have access to bad credit auto financing without having to worry about schemes like yo-yo financing. That why we match applicants with credit difficulties to car dealers that can offer them their best opportunities for auto loan approvals.

So if you're ready to reestablish your car credit, you can begin now by filling out our online car loan application.