Driving off the lot with a brand-new or new-to-you car is a great feeling. Driving it around town and showing it off to your friends and family, even better. But getting a call from the car dealer telling you to return it is a major letdown. After you get over the shock, you’re left wondering, “Can they really do that?”
Car Finance Approved Then Declined
This rollercoaster series of events can and does happen. It happens because most car dealers don’t have the financing for your purchase finalized before you leave with the car. It may sound surprising that the car loan is denied after you signed all the papers. After all, isn’t it in the dealer’s best interest to make sure you qualify for the loan before they hand over the keys?
The answer is, "kind of." The car dealer wants to sell you that car as badly as you want to buy it. To close the deal they often just take a quick look at your credit score.
They determine at a glance that they think you’ll qualify for a loan. Then they send you on your way with your new wheels.
After you leave, the dealer's finance department starts working on actually securing a loan for you. Any lender will take a much more thorough look at your credit report, warts and all.
Even if you have a decent score, if they see something seriously negative they’re going to pass on loaning you money.
So Now What?
If the dealer is unable to find a lender to take the loan, he will contact you and tell you to return the car. When this occurs, the dealer is supposed to notify you to return the car within 10 days of your getting it.
The truth is, it often happens outside of that window.
However, if a dealer tells you to return your car after 10 days, you may still have to do it. Here’s why: Somewhere in the fine print of the contract you signed, it states that if the dealer cannot find a lender for you, the car has to be returned.
This clause may state that the dealer has 30 days or more, or it may not state a time limit at all.
The law is supposed to prevail, but some dealers will use scare tactics, like threatening to call the cops if you don’t return the vehicle. In all likelihood this is only a threat. Even if they do call the police, law enforcement does not like to get involved in civil matters.
What Should I Do?
Even though the police will probably not get involved, you should not ignore the situation.
After all, you do have the car, and you are supposed to pay for it. You could go to your bank or credit union and try to get a car loan there.
If your credit isn’t good enough to qualify at a bank or credit union, try searching the internet for companies that give car loans to people with less-than-ideal credit.
But be careful, these companies often charge extremely high interest rates. You may find that, over the life of the loan, you’ll be paying twice or three times the price of the car.
You could also contact an attorney for legal advice, but know that this isn’t the type of case lawyers take on contingency.
After all, if you decide to go forward with suing a car dealership for breach of contract and you win, you can’t give your lawyer a third of the car. You’ll have to be able to pay their hourly rate.
If you’re unable to pay for an attorney, your best option is to return the car and move on.
LeDona Withaar has over 20 years’ experience as a securities industry professional and finance manager. She was an auditor for the National Association of Securities Dealers, a compliance manager for UNX, Inc. and a securities compliance specialist at Capital Group. She has an MBA from Simmons College in Boston, Massachusetts and a BA from Mills College in Oakland, California. She has done volunteer work in corporate development for nonprofit organizations such as the Boston Symphony Orchestra. She currently owns and operates her own small business in addition to writing for business and financial publications such as Budgeting the Nest, Zacks and PocketSense.