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After working with a dealer, you drive off in your new or new-to-you vehicle confidently. Although the financing hasn’t been approved quite yet, spot delivery allows you to take your new vehicle off the lot immediately.
But a few days later, you receive a call that no one wants to hear: your financing has fallen through. If you are in this uncomfortable position, your next step should be to determine whether there’s an issue with the information in your application that caused the denial or if you have fallen victim to a spot delivery scam.
Can you be denied a car loan after preapproval?
Although the likelihood of it happening for a legitimate reason is very low, you can get denied a car loan even after driving off the lot. Here are some common reasons why:
- You lost your job. The lender will likely verify your employment when processing your application for financing. If they’re unable to confirm your employment because you were terminated, laid off or resigned, your application could be denied.
- Your income went down. Whether it’s the result of a job change or reduction in hours by your employer, the lender may decide you can no longer afford the monthly car payments and deny you an auto loan.
- Your application contains unverifiable information. Are there typos in your application? Did you get a new job or relocate after getting preapproved for an auto loan? These are all reasons for the lender to deny your loan if you failed to notify them of the changes.
However, there are instances where your preapproved auto loan financing could fall through due to a so-called yo-yo or spot delivery scam. In this case, you’ll want to take swift action to have the situation rectified and avoid falling victim in the future.
Look for signs of a spot delivery scam
When a dealer allows a spot delivery, that means you can drive off in your vehicle the same day you sign the paperwork.
But the actual financing of your loan might not be completed just yet. That’s especially true if you come to an agreement with the car dealership after the banks are closed.
When used legitimately, a spot delivery can allow you to take a car home more quickly, which is very convenient. However, if the dealer later tries to undo the sale agreement and ratchet up the price or interest rate, consider it a red flag for what’s often called a yo-yo scam.
“Spot delivery is not inherently a red flag or a scam. It can be a legitimate business practice used when a dealership needs extra time to finalize financing, such as on a weekend or a holiday when most banks are closed,” says Mark Holthoff, senior editor for customer acquisition at Carvana. “However, the practice has earned a negative reputation since it’s been misused by some unscrupulous sellers to pressure buyers into returning to the dealership to renegotiate a deal.”
See how the dealer reacts
If the dealer is threatening to report the vehicle as stolen or repossess the vehicle immediately, then you are likely dealing with a scam.
But it is important to note that not all spot deliveries are scams. Mistakes can happen. A legitimate dealer may allow spot delivery, but then make a calculation error on your loan application, causing the deal to fall through.
However, if the dealer could have reasonably assumed that a buyer wouldn’t be approved at the rates offered and demands the buyer resign for the vehicle at a higher interest rate, then something fishy is likely going on.
Look at the original documents
Take a look at the original purchase documents. Dealers that allow spot delivery sometimes include a “seller’s right to cancel” or “limited right to cancel” clause or form. These documents leave room for the seller to proceed with a bait-and=switch scenario.
If the dealer allows spot delivery, they must find a lender or bank to purchase your contract after you drive off with the car. If the dealer can’t find a buyer, they may cancel your purchase contract or demand you agree to a new financing agreement with a higher interest rate.
This section or document will explain the spot delivery terms, typically including the following:
- A time limit for the dealership to cancel the sale and notify the buyer if they can’t find financing (often 10 days)
- The requirement that you return the vehicle
- The dealership’s responsibility to refund your money and either return your trade-in vehicle or pay you its value if it has already been sold
“This should never be necessary, but some dealers are so anxious to close a deal that they fail to finalize financing before releasing the vehicle and need a mechanism to undo the deal if financing falls through,” says Michael Sullivan, a personal financial consultant with the non-profit financial counseling agency Take Charge America.
If you think the dealership violated the terms laid out in your “seller’s right to cancel” clause — or if there was no such clause — seek legal help.
Here’s what to do
In some cases, your financing may fall through for legitimate reasons. This can happen when your credit score is not sufficient, you have too much debt, or even when there’s inaccurate or incorrect information on your application that’s later discovered. However, the financing fallout can also be tied to tricky dealer tactics. Here’s what to do in either scenario.
…If you’ve been scammed
The unfortunate reality is that there are scammers in almost every industry. And car dealerships are no exception.
- There was no “seller’s right to cancel” form or clause in your purchase documentation, but the dealership is still trying to call off the sale
- The dealer appears to have violated the terms laid out in the “seller’s right to cancel” form or clause
- The dealer appears to have violated your state’s laws
- The dealer refuses to return your trade-in vehicle or pay you its value if it’s already been sold
- Or you feel the dealer has engaged in otherwise predatory or deceptive conduct
It may be time to seek legal help. Gather all of the original documents. Next, reach out to the office of your state’s attorney general. These officials will be able to guide you through your options at a state-specific level.
“Document everything. Take photos of odometers and messages; keep copies of all paperwork,” says Sullivan. “Then inform everyone. The consumer protection office of your state’s attorney general’s office, local media outlets, the Better Business Bureau, the Consumer Financial Protection Bureau and local law enforcement are examples of groups to inform.”
In some cases, the investigators may ask for a timeline of events relating to your car purchase. With that, it is a good idea to immediately write down every detail of the process. Otherwise, it can be difficult to piece the details together later.
…If you’re denied for legitimate reasons
As we’ve discussed, your financing may be legitimately denied. There are several steps you can take if you find yourself in this situation.
- Determine the cause of the denial: The first step is to inquire about the reasons why the financing fell through so that you have the opportunity to address whatever the issue may be.
- Check the credit report used: Ask for a copy of the report, or request it from the bureau yourself. “See if the report is correct, because there are often errors,” says Sullivan.
- Provide updated information. If there was an inaccuracy or incorrect information that caused the denial, provide updated information.
- Shop for funding elsewhere: You can try to obtain a loan from another source, such as a bank, credit union or online lender. This will likely net you a better rate than whatever alternative the dealer offers.
- Use your own funds: If you have savings you can tap into or a credit card with enough of a balance available, you might use one of these forms of payment.
- Return the car. If all else fails, you will need to return the car.
How to protect yourself in the future
If you find yourself the victim of a spot delivery scam, there are steps you can take to avoid this ordeal in the future.
Be skeptical of advertisements by car dealerships
Always read the fine print to learn more about rebates of savings the dealer is advertising. Many come with conditions that could make them unavailable to you.
Research dealerships to work with
A quick internet search can help you find a dealership in your area with the best customer reviews. Avoid dealerships with several negative reviews or that have a reputation for shady deals.
If anything about a dealership makes you uncomfortable, find someone else to do business with.
Arrange financing directly with a lender
Instead of relying on a dealer for financing, apply for an auto loan directly through a bank, credit union or online lender. You can prequalify before heading to the car lot to ensure you get the best deal on financing.
Take your time
Although buying a car can be a chore, don’t rush through the paperwork or sign without reading the fine print to get the deal done. Look out for “right to cancel” clauses and make sure you fully understand what they entail.
Don’t take a spot delivery
You may not be thrilled with the idea of having to wait around until your loan is approved, processed and funded to drive off in your new car. However, avoiding spot deliveries will eliminate the possibility of a spot delivery scam. Make sure to explicitly ask your dealer whether the financing is finalized to avoid unknowingly taking a spot delivery.
The bottom line
A spot delivery scam can be financially and emotionally taxing. If you are in the market for a vehicle, the best move is to obtain financing directly from the lender. Don’t rely on dealer financing. Not only is dealer financing often more expensive, but you’ll also face the possibility of a spot delivery scam. So, if you are looking for a reputable lender to work with, check out Bankrate’s list of top auto lenders.