Philip Reed over at Edmonds posted an interesting article concerning the sketchy dealer practice of “spot delivery,” or “yo-yo financing.” For people with less than optimal credit worthiness or an inability to provide a strong down payment, these practices often result in less favorable financing terms than the buyer originally contemplated. Mr. Reed’s article is well worth the read.

What you need to know is that there is no requirement in California that a buyer agree to a new sales contact, or different financing terms. If the dealer is unable to obtain the financing upon the terms stated in the original contract, then the buyer is entitled to return the car to the dealer and receive all money, including the trade-in, in return, without penalty. The buyer’s right is expressly set forth in California Civil Code section 2982.5:

“If the buyer upon proper application for the loan is unable to obtain the loan, on the condition stated in the agreement between the buyer and the seller, the agreement shall be deemed rescinded and all consideration thereupon shall be returned by the respective parties without demand.”

I want to also mention an illegal practice that often accompanies a spot delivery or yo-yo financing scheme. Watch out for contract backdating. Backdating occurs when the dealer has the buyer sign a second contract and backdates it to the date of the original contract. Backdating is an illegal practice. It can lead to the buyer being stuck with excessive financing charges or other unfavorable terms.

Do not hesitate to call me if you are presented with a situation in which the dealer refuses to cancel a spot delivery contract, or if you suspect that backdating occurred. I may be able to provide you help. The dealer pays my fees, not you.