What is a backup contract from a car dealer?

A local Toyota dealership is requiring me to sign a backup contract on the car I want to buy. The salesman says that I have to sign this backup contract if I want to purchase the car in case my financing falls through. Not only does it have a higher APR than my credit union loan, but it also means the dealership can run my credit again, potentially lowering my score. What is a backup contract and should I sign it?

Answer
“A backup contract is relatively common in the automotive retail space to avoid deals falling apart.
However, since you’ve been approved for financing by a credit union, it’s extremely unlikely that they’ll deny you now.
Instead of signing the backup contract, have the salesman call your lender. Your lender can verify the check is legitimate and the funds are available. The dealer will likely agree to bypass the backup contract.
If they’re forceful about it, you can still walk away. Don’t sign any contract you aren’t comfortable with, especially if the interest rate is sky-high compared to your current loan.
Don’t forget that when you buy a new vehicle, you will need proper coverage. Use the free Jerry app to help you find the best deal. Jerry compares rates from the top 50 companies in under a minute, delivering the best deals to your phone.”
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Eric Schad
Answered on Jul 30, 2021
Eric Schad has been a freelance writer for nearly a decade, as well as an SEO specialist and editor for the past five years. Before getting behind the keyboard, he worked in the finance and music industries (the perfect combo). With a wide array of professional and personal experiences, he’s developed a knack for tone and branding across many different verticals. Away from the computer, Schad is a blues guitar shredder, crazed sports fan, and always down for a spontaneous trip anywhere around the globe.
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