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Consumer
Don't Brake For Yo-Yo Car Financing
McLEAN, Va. (2/19/13)--You're at the car dealership and you're good to go--you even get to drive your new car home while the dealer works out final financing details. Don't do it. The dealer could ask you to come back--days or even weeks later--to sign a more costly deal. This abusive practice is called spot delivery or "yo-yo financing," and happens most often to consumers having shaky credit (USAToday.com Feb. 8).

Yo-yo financing occurs when the dealer calls the buyer back to the dealership at a later time and pressures the consumer into signing a new financing agreement with less favorable terms. The buyer is pulled back to the dealership like a yo-yo on a string.

Unscrupulous dealers do this because, once buyers take the car, they think the deal is done. They stop shopping elsewhere for better rates and terms. In some cases, buyers who won't agree to the new terms have a hard time getting down payments or trade-ins returned. They're sometimes told their trade-ins already have been sold, leaving them with the unsavory choice of agreeing to the new terms or not having a car to drive.

In extreme cases, dealers threaten to repossess the vehicle and destroy the buyer's credit. Some threaten to report young military members to their base command.

Some legwork can help you avoid the yo-yo game, according to USAToday.com:

  • Get preapproved for an auto loan at your credit union before you shop. Preapproval removes the whole financing question from the dealer's hands; you're as good as shopping with cash, which also improves your position when bargaining on sale price. Credit unions generally have lower loan rates and better terms than other financial institutions.
  • Know your credit score and what's on your credit report. You can request one free report a year from each of the three major credit reporting bureaus by visiting annualcreditreport.com, the only website authorized to provide these free reports. You also can call 877-322-8228 to request a report. Some lenders will tell you your three-digit credit score when you apply for credit, or you can buy your score from one of the three reporting agencies.
  • Don't drive the car home until the deal is final, no matter how tempting. If you are in desperate need of transportation, consider renting a vehicle, taking public transportation, or asking someone else for help.
  • Read the contract. Get every detail in writing, encourages dailyfinance.com. Be especially cautious of contract conditions that would allow the dealer to rewrite the deal or add charges after the sale.
For more information about smart vehicle shopping, read "The Best Cars for Stages of Your Life" in the Home & Family Finance Resource Center.
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