Can a Car Dealership Take a Car Back If Your Financing Is Not Approved?

by Shanan Miller ; Updated July 27, 2017

A car dealership can take back a car that is not approved for financing, even if it let you take the car and led you to believe a bank approved your loan. Consider pursuing financing on your own and learn how to avoid this issue in the future.

Why the Dealer Let You Take the Car

Dealerships work with a variety of banks. Many can submit a credit application electronically. Dealers can view your credit information to determine your rate and chance of approval. If the dealer believed one of its banks would finance your loan based on the vehicle you chose, down payment, credit history and income, it may chose to let you take the vehicle home. This often happens after bank business hours. The dealer will let you take the car and hope to have the loan approved the next business day.

Why You Can't Keep the Car

If the banks declined your application, you must come up with the vehicle payment on your own. Even if you signed motor vehicle paperwork, the dealer will not process it. Signing bank contracts does not secure your loan either. The paperwork you sign at the dealership is sent off to a lender and state motor vehicle office for processing days after you complete it. You will not receive financing, the vehicle's title or registration.

Other Options

Come up with a higher down payment or agree to a higher rate if a potential lender offered you the option. Otherwise, you can pursue financing on your own. Apply to a local bank or an online lender. If you still can't obtain a loan, consider using a cosigner to guarantee your loan. Using a cosigner allows you to take advantage of rates, term and other lending options you did not qualify for otherwise. If you are able to obtain your own loan, you can keep the vehicle after paying the dealer.

Future Precaution

In the future, obtain a loan pre-approval before you set out to shop. A lender can alert you to credit issues you didn't know existed, prepare you for down payment requirements or other lending restrictions. If you have a pre-approval, a dealer can offer to beat your rate. Dealerships can mark up an interest rate to make a profit, which you can avoid with your pre-approval. The pre-approval also allows you to shop by your budget without concern for dealer financing.

About the Author

Shanan Miller covers automotive and insurance topics for various websites, blogs and dealerships. She has extensive automotive experience, including auction, insurance, finance, service and management positions. Miller has worked for dealer sales events around the United States and now stays local as a sales and leasing consultant for a dealership.