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News 5 Investigates: Beware of Yo Yo financing at car dealerships

Buyer says dealership called days later to say financing fell through after contract was signed
Yo Yo Financing
Posted at 3:41 PM, May 20, 2021
and last updated 2021-05-21 08:45:57-04
News 5 Investigates: Beware of Yo Yo financing at car dealerships

It's a competitive car buying market right now with drivers trading up for a new ride.

Many consumers dread negotiating a car deal in the finance office at a dealership, but News 5 Investigates uncovered the hardest part of negotiating a car deal may come several days after you already left the car lot.

Dealerships like to close the sale immediately and may let you drive off in a new car before financing is fully secured.

It's called "spot delivery" or a "Yo Yo" car deal---and it's catching some consumers off guard.

Imagine spending hours at the dealerships to negotiate a sale. You sign off on all the paperwork and leave the car lot.

By the time you drive away, you're probably thinking everything is a done deal, but that's not always the case.

Caitlin Sebern
Caitlin Sebern

Caitlin Sebern and her husband wanted to start a private hauling business and needed a truck.

They found the perfect RAM Pickup sitting on the lot at Five Star Auto Sales in Pueblo.

RAM Pickup Truck
RAM Pickup Truck

"We signed all the paperwork that day," Caitlin said. "We walked out of the dealership and took the truck home. The owner shook our hands and thanked us for our business. As far as we knew, everything was done."

A week later, Caitlin says she got a call that she needed to return to the dealership to sign new paperwork. Apparently, the original loan had not been approved and finalized.

"We had left that day thinking we would never have to go back there," Caitlin said. "We got the truck. The transaction was complete as far as we knew."

Five Star Auto Sales
Five Star Auto Sales

The dealership reportedly did a spot delivery or "Yo Yo" deal---allowing Caitlin to leave the dealership in a new car without the transaction being finalized.

This practice appears to be somewhat common at Five Star Auto Sales and it's not unheard of for dealerships across the country to engage in the same type of operation.

Google Reviews for Five Star Auto Sales
Google Reviews for Five Star Auto Sales

We found a handful of online reviews with similar stories from people who say they thought they had a done deal with the dealership, only to find out days later that financing wasn't approved or that a co-signer was needed to make the deal happen.

"He (the car salesman) just said 'I got you a better deal' and we saw that the monthly payment was lower so we said okay," Caitlin said.

Caitlin later found out her car deal really ended up looking more like a dud after reviewing the paperwork.

The original terms of the loan carried a $452/monthly payment for 36 months with a total price of $19,781.

When that loan was not approved, the dealership called back and told Caitlin about a lower monthly payment. However, that lower payment came with a lengthier loan term and more interest which resulted in a higher total sale price.

"Consumers can avoid the potential for this (problem) by obtaining their own financing prior to going to the dealership," Chris Rouze, the Auto Industry Division Director for the Colorado Department of Revenue said.

Rouze says consumers often get caught up focusing only on the monthly payment for a car---and that's a big mistake.

"Consumers should not only look at the monthly payment, but they should look at the total cost of the vehicle when they factor in the down payment and finance charges," Rouze said.

By law, if a dealership is unable to secure financing for you within 10 days at the rate you initially agreed to in the contract, consumers do have options.

"The consumer can re-negotiate with the dealer (for a new rate) or the consumer can return the vehicle," Rouze said.

Caitlin says she wished she would have known her options at the time the dealership called her back to the car lot to sign new paperwork.

"We didn't realize we were able to back out of the deal," Caitlin said. "We had no idea that the second time we could have said this was more than what we agreed to so we can back out. I feel really taken advantage of."

Caitlin did file a complaint with the State of Colorado's Dept. of Revenue.

Since the dealership did notify her within 10 days that financing wasn't approved, the case was closed and the dealership is legally in the clear.

On April 7, 2021, News 5 Investigates sent certified mail to Five Star Auto Sales seeking comment on Sebern's case.

Derek and Audra Reeves, the owners of the business sent us the following statement via email:

I would like to respond to the letter that was written to you from Caitlin Sebern. Caitlin filed a formal complaint with the Colorado Department of Revenue (Auto Industry). Following a thorough investigation of our company, the investigative officer found no negligence on our part and the case was closed. We do apologize for any inconvenience this has caused Ms. Sebern.


Q: What specific rights do I have as a car buyer if a dealership calls me and says financing fell through after I already signed the paperwork/contract?

A: If your contract is contingent upon the approval of credit financing arranged by or through the dealer, you authorize that you will buy the motor vehicle/power sports vehicle if financing can be arranged at the annual agreed upon interest rate. The interest rate must be agreed to by both you and the Dealer. Within ten (10) calendar days of the date you sign the contract, the dealer must notify you if financing is not approved at the interest rate stated on your contract. You are not required to accept an interest rate higher than what you initially agreed to. For the specific language of this clause, click here.

Q: If a dealer says I don't qualify for financing at the agreed upon terms and I wish to return the vehicle I purchased, can I be penalized?

A: Yes. Dealerships can assess fees (mileage for example) for every day you had the vehicle. The terms and fees should be clearly outlined in the contract you sign.

Q: What happens if a dealership calls me back after the 10 day period expires and notifies me that I didn't qualify for financing at the agreed upon rate?
A: Click here to learn more about filing a complaint with the state's Auto Industry Division.

Q: Can I get my trade in back if financing falls through on a car deal?
A: Possibly. Some car dealerships may clearly state that your trade-in may be sold and you would only be entitled to recoup the value of your vehicle if the deal falls through. It's why the Auto Industry Division encourages buyers to read their contracts carefully before signing paperwork. Also, coming in with pre-approved financing from a bank can save you time in the long run.

Q: Are there incentives to financing with the dealership vs. my own bank?
A: Some dealerships will offer additional incentives if you finance through them. However, it's important that you compare the interest rate and loan term offered to make sure you are getting the best deal.

For more car buying tips from the Auto Industry Division, click here.

Have a problem or issue you'd like our News 5 Investigates team to look into? Email us: