At some point in your life, you may find yourself in need to finance a car.

In fact, most car buyers finance their purchases.

You’ve seen ads that promise low monthly payments, no down payment, and even zero percent financing.

But the reality is that these deals are often too good to be true.

Yo-yo financing is one such trap that could leave you with a car you can’t afford, a high-interest rate, and a damaged credit score.

So let’s explore what yo-yo financing is, how it works, and most importantly, how you can avoid it.

Table of Contents

What Is Yo-Yo Financing?

Yo-Yo Financing
Captive Salesman

Yo-yo financing is a type of auto financing that involves dealerships financing your car purchase without finalizing the terms of the loan.

So it goes down like this.

In most cases, the dealership will tell you that you’ve been approved for financing, but they will leave the interest rate and other important loan terms undefined.

The dealership allows you to drive the car off the lot before the financing is complete. This is known as “spot delivery.”

The dealership then uses this tactic to coerce you into signing a new contract with higher interest rates and unfavorable terms.

They will threaten to “take the car back” if you refuse to sign the new contract.

This practice is known as a “yo-yo scam” because it involves the dealership bouncing you back and forth between contracts until you sign one that benefits them.

How Yo-Yo Financing Works

Yo-Yo Financing
Handshake Deals

To understand how yo-yo financing works, imagine that you’ve found the perfect car at a dealership.

You test drive the vehicle, and the salesperson tells you that you’ve been approved for financing.

You’re excited about the low monthly payments and no down payment, and you sign the contract.

A few days later, you get an urgent call from the dealership.

They tell you that the financing fell through and that you need to come back to sign a new contract with higher interest rates and less favorable terms.

You’re told that if you refuse to sign the new contract, you will lose the car.

Most people are afraid to lose the car they’ve fallen in love with, so they end up signing the new contract.

They’re left with a car that they can’t afford and a high-interest rate that they’ll be paying for years to come.

How To Avoid Yo-Yo Financing

Yo-Yo Financing
Buyer Beware

Now that you know what yo-yo financing is and how it works, let’s talk about how you can avoid it.

The best way to avoid yo-yo financing is to secure financing before you start shopping for a car.

This starts with having good credit. Good credit allows you to qualify for the lowest rates.

Places like credit karma allow you to check your credit score for free and even offer ways to improve your score.

This means that you’ll know the terms of the loan, how much it will cost, and how much vehicle you can afford before you visit a dealership.

You can secure financing through a bank, credit union, or online lender.

This will give you the negotiating power to get a better deal at the dealership.

If the dealership offers you a better financing deal, you can take it. But, you’ll have the option to decline it and stick with the original loan terms that you secured.

Another way to avoid yo-yo financing is to read the contract carefully before signing it.

Look for any undefined terms or clauses that give the dealership the right to change the terms of the loan.

If you’re unsure about anything in the contract, ask the salesperson to explain it to you in detail.

Wrapping Things Up

Yo-yo financing is a trap that can leave you with a car you can’t afford, a high-interest rate, and a damaged credit score.

By securing financing before you start shopping for a car and reading the contract carefully before signing it, you can avoid yo-yo financing and get the car you want at a price you can afford.

Don’t fall for the yo-yo scam.

 
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