California is moving closer to curbing sour deals on used cars sold by “buy here pay here” auto dealers, who target struggling people with bad credit — including members of the Armed Forces and their families. CARS is on the forefront in pushing for the reforms.
Los Angeles Times report:
One of the most common auto sales scams is known as “yo-yo” financing. It’s basically bait and switch over the financing. Typically it happens like this —
You agree to buy the car, on reasonable terms, and sign a contract. The finance manager is all smiles, and hands you the keys. You drive off in your newly purchased car. Everything seems fine. Until you get “the call.”
The dealer tells you the financing “fell through” and you need to bring the car back. If you refuse, he threatens to repossess the car and trash your credit. Or he threatens to call the cops and have you arrested for auto theft. Even though you have a signed contract, and may have started making payments.
The dealer refuses to return your down payment or traded-in vehicle. He does this to keep you trapped and stop you from going to another dealership where you could get a better deal.
One consumer who contacted CARS was talked into buying a new Toyota, even though she told the salesman she didn’t think she could afford it. He insisted she could afford a new car, since they were offering 0% interest, so her payments would be lower than on the car she was trading in. But — shortly after she bought the car, the dealer called and told her that the financing “fell through.” Instead of 0%, the interest rate was going to jump to 16%. No way she could afford the payments at that rate. When she refused to agree to the higher rate, the dealer threatened to repossess her car. CARS eventually got the dealer to back down, by exposing the case to the news media. However, most consumers who are yo-yo’ed end up with loans far more expensive than they had bargained for.
The safest way to make sure you’re not yo-yo’ed is simple. NEVER get financing from the dealer. Either save up and pay with a check, or join a credit union and get pre-qualified for a loan. If the dealer says he can get you a lower interest rate, don’t believe it — the interest rate could skyrocket if the dealer decides to yo-yo you. \
A new report on MSNBC describes the scam and how to avoid failing into the yo-yo financing trap: