What’s an auto loan yo-yoing scam?

First, what is auto loan yo-yoing?  You purchase a car and drive away with the car thinking that the loan has been approved. The dealer calls you to inform you that the financing has fallen through and you need to renegotiate. This scam is called yo-yoing because it seems as though the car is tied to a yo-yo string and the dealer can get it back. Individuals with poor credit are subject to this scam; they aware they have poor credit and can’t get the best interest rates.

How it works

Yo-yoing scam or spot sale can work two different ways.  1. The consumer puts money down or has a trade-in, signs a loan agreement that is subject to approval, car keys are turned over and they drive off with the car.  The dealer assures them that they will be able to finance the car.  2. The other is the selling process has been completed with the contract of sale executed, signed title, down payment or trade-in received and keys turned over.  The difference being that loan is approved in situation number two and not in situation number one.  In both situations, the dealership now works with the finance company to buy the loan. If the finance company refuses to buy it or does so for less, the dealership can’t make the money they planned.

A few weeks may have passed and the dealership contacts the consumer to inform them that the loan did not go through and they have to come back to the dealership to renegotiate the deal. There are several outcomes, they pay a higher interest rate for the loan, they are put in a different car, or the car is taken back. If the consumer requests their trade-in back, they usually don’t get it back, because it has already been sold.  In addition, the dealer does not return the down payment and uses it toward mileage. If the consumer doesn’t return the car, the dealer often repossesses it.   You signed a contract but the dealership did not honor it.

How to avoid it

When you car shop, one of the first things that happens is the dealership pulls your credit report and credit score to determine your credit rating and the terms for which you qualify, such as interest rate. They should already know if they can sell your loan, unless your credit is poor and they have to shop around for financing.  The dealers are very familiar with what loans will be financed.  This only works with individuals who have poor credit and are not familiar with getting credit.

How do you avoid this? You need to know your credit score and also obtain financing at a credit union or bank or both, before you go to the car dealership. You have more leverage to negotiate with the dealer. If you finance through a dealership, make sure the loan paperwork is finalized such as the APR and guaranteed price.  If you have been scammed, you should contact your state’s Attorney General office and the Better Business Bureau.

Credit Damage Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

Categorised in: Auto Loans, Civil Penalty, Getting Credit, Money & Identity

This post was written by John Ulzheimer