Getting financing through a dealership is often the quickest and most convenient option for many people. According to data from the National Automobile Dealers Association, around 70 percent of buyers opt for dealership financing. You visit the lot, select the car you want, finance it and drive home — all on the same day.

Except there may be a document in your purchase agreement that states the financing isn’t final. In most cases, it won’t mean much. The dealership will finalize your financing with one of the lenders in its network at the terms you agreed to during your visit.

This practice is known as spot financing. It’s a common method dealers use to get you to buy a car. But for less-legit lenders, it can be used to manipulate the buyer through a “yo-yo financing scam.” A dealer who never intended to give you the offered annual percentage rate could claim that financing fell through. And you will be strong-armed into accepting a worse rate or returning the car, sometimes after your trade-in has already been sold.

What is a yo-yo scam?

A yo-yo scam occurs when you get dealership financing. The sales rep might offer you an auto loan with a very low interest rate, a great deal on your trade-in or other terms that are difficult to say no to. It often sounds too good to be true — because it is.

You will be asked to sign documents with the lower rate listed, but a few days or even weeks later, the dealer will contact you and say that it can’t offer you the terms of your original contract. The claim is that you need to renegotiate or the offer will be rescinded completely.

The new interest rate is typically much higher than the original loan. When you ask about the rate hike, the dealer will likely say you didn’t qualify for the initial interest rate despite originally leading you to believe you did.

This back and forth is where the scam gets its name. You’re let go with the car, then pulled back in like a yo-yo.

Is yo-yo financing illegal?

According to data gathered by NPR, attorneys reported 900 cases in the last year where consumers felt they were the victims of yo-yo financing.

Yo-yo financing is often called a scam. But while the Federal Trade Commission (FTC) has long flagged it as a widespread problem, there is currently no federal law or rule explicitly banning the practice. However, there has been a recent push to regulate spot financing in order to prevent the yo-yo financing scam — and some want to ban spot financing entirely.

And a handful of states have created laws addressing it.

For example, in California, car dealers are allowed to cancel the sale within 10 days and demand the car be returned, but they are not allowed to demand you sign a new contract for the same car.

Meanwhile, Maryland requires dealers to make a number of disclosures in writing when allowing spot delivery. The dealer has just four days to notify you if the credit terms are rejected, and once you’ve returned the vehicle, they must return your trade-in car, payment, taxes and fees.

Check your state’s laws to see what restrictions exist on spot financing in your state. If you think the dealership may have violated the law, contact your state attorney general.

How to avoid yo-yo financing scams

Knowing what yo-yo financing looks like will help you avoid it. As with any major purchase, be prepared and read through all the documents in your loan contract before you sign.

  1. Shop around first. You don’t have to rely on dealer financing. You can and should compare auto loans before you set foot at the dealership. Not only will it give you an idea of what rates you might qualify for, you can avoid dealer financing entirely if it doesn’t offer you better terms.
  2. Read the fine print. Even if you think you have a good grasp of what potential costs will be in a financing contract, read the fine print. Look for terms like “conditional” and ask what they mean if you don’t fully understand the context. If a rate or price is provided that is higher than the original quote, ask why.
  3. Don’t sign until you’re ready. Financing a car at the dealership may lead to increased pressure from the sales team. If the sales rep pressures you to sign or accept unclear terms, be prepared to walk away.

Ultimately, spot financing is not illegal and is very common. Your loan contract will likely include language that says financing is conditional on approval. Check customer reviews and watch for other common scams to determine if the dealer can be trusted.

What to do if you fall victim to a yo-yo scam

There are a few immediate steps you can take when a dealer tells you your financing has been denied.

Review the purchase contract

Check if the contract is a conditional sales agreement. If it is, you may be able to return the car and receive any money you put down along with your trade-in, if you made one.

If the dealer already sold your trade-in, you should receive the cash amount of the sale. If the dealer refuses to refund the amount, you should contact your state attorney general’s office immediately — and potentially report the dealer to the Consumer Financial Protection Bureau (CFPB).

Request the denial letter

Ask for the letter from the lender denying your auto loan request. If the dealer won’t provide it, you should likely return the vehicle and find a legit dealer that is willing to work with you.

See if you can secure your own financing

If you, understandably, want to keep the car, see if the lender will give you the out-the-door price. From there, you can see about securing your own financing with an online lender, bank or credit union.

How to report the scam

You can report suspected yo-yo auto loan scams to the FTC online or by phone. When reporting, you will need to provide personal information to help authorities identify you. You can also contact your state attorney general’s office for more assistance.


To begin, visit the FTC’s online complaint form at You will need to provide more information about the scam, including the dealership’s name and the names of people you’ve spoken with.

Once you submit the complaint, it will be reviewed and assigned to an investigator, who will review your case and potentially contact you to ask for more information.


You can also contact the FTC by telephone at 877-382-4357. The call will go to the FTC’s Consumer Response Center, where you will use a phone tree to submit your complaint.

The bottom line

While spot financing is common, yo-yo financing scams are less so. Your best defense is to have a loan before you visit the dealership and to thoroughly review any contract you sign.

If you think you’ve been the victim of a yo-yo financing scam, contact your state attorney general’s office and the FTC.