What is Yo-Yo Financing?

“Yo-yo financing” or “spot delivery” allows a driver to leave the dealership with a new vehicle before its financing has officially been finalized.
Written by Melanie Krieps Mergen
Reviewed by Jessica Barrett
Yo-yo financing scams, also known as spot delivery scams occur when a dealership leads a car buyer to believe they’ve secured a car loan and closed on their vehicle purchase. Later, the dealership informs the buyer that they weren’t actually approved and need to sign a new contract—often with a higher interest rate and less ideal terms.
Yo-yo financing goes by a fun name, but actually experiencing it can be a lot less amusing. Picture this: the dealership lets you drive your new car home, and as far as you’re aware, the sale is a done deal. 
Then, the dealership reels you back in—just like a yo-yo—because they say you didn’t actually qualify for the
car loan
you thought you did. If you want to keep the car, they tell you, you’ll have to sign a new, more expensive loan agreement.
But you don’t have to go along with the trick. If you’re in the market to purchase a new or used car from a dealership in the near future, here’s what to know about yo-yo financing scams and how you can avoid them.
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What is yo-yo financing?

Yo-yo financing” or “spot delivery” allows a driver to leave the dealership with a new vehicle before its financing has officially been finalized.
Car dealerships have an incentive to close a vehicle sale as soon as possible—after all, if you leave the lot, there’s always the chance you might reconsider your purchase and decide not to return. If you’re at the dealership during a time when lending institutions are closed—such as on a weekend or federal holiday—some might let you drive off the lot before your financing is actually approved
For some drivers, this is convenient enough and gets you in a new vehicle that much sooner. But it’s a lot more problematic if you leave the lot under the false impression that your purchase is set in stone and all that paperwork is behind you—and some dealers will intentionally use this tactic to take advantage of car buyers with bad credit.
A few days later, you might get a call from said dealership informing you that the loan terms you agreed to actually aren’t possible and that you’ll have to return to renegotiate your new deal—with far less ideal terms. 
It’s even possible the auto dealer might mask the fact that your new deal is worse by advertising a lower monthly payment when it actually has a higher interest rate or a longer loan term than your previous deal, meaning you’ll pay more in the long run.
In some cases, a dealership may even threaten to repossess the vehicle or report it as stolen if it isn’t returned.

How do you get out of a yo-yo financing scam?

Spot delivery isn’t inherently illegal—the problems arise when it’s intentionally used as a deceptive tactic. To get out of a yo-yo financing scam, you’ll first need to understand the terms of the agreement(s) you signed. 
It’s possible some financing agreements may have language that allows for loopholes, which could make a predatory spot delivery technically legal (but no less scummy). In other cases, it’s possible the loan agreement may be at odds with consumer protection laws, such as the Truth in Lending Act and the Unfair or Deceptive Acts or Practices regulations, making it unenforceable. 
Again, it all depends on what’s in the agreement you sign.
If a car dealership can’t honor the financing you agreed to with a spot delivery within the contract’s designated period (commonly 10 days from when you signed the agreement), there are two main ways you can respond:
  • You can return the vehicle: The dealership typically has to return your old car if you offered it up as a trade-in, as well as any down payment you made. If your vehicle has been sold already, they’ll likely owe you the value of your vehicle.
  • You can renegotiate with the dealership: If you really want the vehicle you’re driving, you still have the option of renegotiating your financing with the dealership, but proceed with caution before signing on the new dotted line.
If the dealership refuses to reimburse what you believe is legally required of them, it’s possible you may have grounds for a lawsuit—especially if they led you to believe your financing was already approved. 
When this is the case, you can consider seeking out legal counsel or filing a complaint with your state attorney general’s office and/or the
Federal Trade Commission (FTC)
.
Worst-case scenario, if no wrongdoing by the dealership was found and the circumstances of your deal leave you stuck with your yo-yo financing for the present, be aware that your situation doesn’t have to be permanent. 
It’s possible that you could refinance your car loan. Some lenders may be willing to refinance your loan immediately, while some will require your loan to be open for a minimum period of time, which could give your credit score a chance to improve.

What are the best ways to avoid yo-yo financing?

Here are some ways you can protect yourself from predatory spot delivery scams.

Read the fine print

This one can’t be stressed enough: don’t sign a financing agreement unless you understand its terms
Some car dealers may pressure you to sign the deal before you’ve read it completely, but don’t allow them to make you feel rushed—you’re under no obligation to sign anything you’re not comfortable with. 
If the dealer has made you any verbal promises about your financing, ask them to identify those points in writing on your sales contract, and keep an eye out for any slipped-in add-ons that you weren’t interested in.
Don’t just focus on the size of the monthly payment, either—take note of the loan’s interest rate and term length.
If you decide to get financing through your dealership, confirm that the loan agreement you’re signing is final. Watch out for suspect conditions or word choices, like “conditional,” when referring to your interest rate and other loan terms.
Also, check the contract for a “seller’s right to cancel” or “limited right to cancel” section. This will usually list some of the most important terms regarding a spot delivery agreement, including the time period within which the dealer has to notify you if your financing doesn’t end up getting approved.
Finally, don’t leave the dealership without your own copy of the agreement!

Get financing from outside lenders

Financing a car purchase directly with the dealership can give the dealership a lot more leverage, meaning you could be missing out on better financing deals elsewhere. 
It’s recommended that car buyers shop around for a few different car loan offers before settling on an option to increase the odds of finding the best possible deal. And if you apply for offers within the necessary time frame—usually within 14 days—additional car loan inquiries won’t have an impact on your credit score.
As an added bonus, car loan pre-approvals can help you negotiate better financing from a dealership if you decide to go that route, but be aware that if their offer seems too good to be true compared to financing options you’ve seen elsewhere, it just might be.

Read up on the dealership

Reputable dealers may offer spot delivery but won’t lead you to believe your purchase has been finalized if you haven’t been approved for financing yet. 
Dealerships that partake in deceptive yo-yo financing scams have probably tried the same tactics on other drivers. Reading customer reviews across multiple platforms can help you catch red flags early on.
It’s also worth checking to see if the car dealership has a BBB rating, and it’s possible that a quick Google search could turn up news reports or other customer complaints tied to the business.

Keep an eye on average interest rates

Market conditions have an impact on what typical interest rate ranges can look like for borrowers. If you get a financing offer that you notice is significantly outside those ranges, it’s a good idea to review that deal and the information on your credit report(s) with closer scrutiny.

Be willing to walk away

Again, you’re under no obligation to buy a vehicle if your gut is telling you that something isn’t right. If the sales approach at one car dealership is making you feel rushed or uncomfortable, or if you can’t get the financing terms you want, you’re perfectly welcome to take your business elsewhere or wait for a better time to buy a car.
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FAQs

Spot delivery on its own may not necessarily be illegal, but it becomes a scam when dealers intentionally use the practice to mislead and take advantage of buyers. When this happens, buyers can file a complaint with their state attorney general or the Federal Trade Commission and/or seek out legal counsel.
Spot delivery allows a car buyer to drive home in a new car before financing is officially finalized. It earns the name “yo-yo financing” when drivers learn they haven’t actually been approved for financing and have to return the vehicle to the dealership.
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