What is a backup contract on a financed car?

I got a car loan and my bank cut me the check to deliver to the dealer. The salesman wants me to sign a "backup contract" in case my financing falls through. My current rate is five percent with my bank; this "backup contract" is nearly 20% APR. What should I do?

“Backup contracts are sometimes used by dealers to lock you into the purchase. This could be an honest dealership that’s been burned before and just wants to cover their behinds. In other cases, this could be a shady deal.
Either way, don’t sign any document that could potentially raise your financing rate fourfold. Instead, have the dealer call your bank to verify that you were approved for the loan.
If the dealer doesn’t want to do it or is strong-arming you into signing the backup contract, walk away. Remember that as the buyer, you have all the power. Exercise it if need be, and never sign anything that doesn’t feel right.”
Eric Schad
Answered on May 05, 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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