Many dealerships allow buyers to drive the vehicle off the lot without knowing which bank will finance the sale. The buyer signs a sales contract and takes possession of the vehicle thinking the deal is done. In most cases, the dealer finds a bank willing to accept the buyer's contract as written. Occasionally, the bank may request an additional down payment or different loan terms than what was written in the contract, but the financing still goes through. Unfortunately, if the dealer fails to find a bank to fund your loan or if you cannot secure financing on your own, you may need to return the car.
Reasons for Loan Denial
A bank can deny a car loan for many reasons, with poor credit being the most common. Although the dealer preapproved you for a car loan based on information in your credit application, the lender can still deny the loan after it receives the sales contract and takes a closer look at your financial situation. The bank will attempt to verify all information in the credit application and will deny the loan if some of the information does not check out. For example, if you misrepresent how much money you make, where you work or where you live, the loan will not go through.
The dealer is in the business of selling cars, so it is in the dealer's best interest to find a loan for you. The sales contract gives the dealer a certain number of days, usually 45, to finance the sale. If the original finance company with which the dealer brokered the loan denies the application, the dealer will search for a different lender. If subsequent searches for financing prove unsuccessful, your only options would be to find financing on your own or return the car to the dealership.
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Other Finance Options
You can secure your own financing if the dealer's lenders deny your loan. The Consumer Reports website suggests you begin your loan search with the bank or credit union you already have a relationship with to increase your chances of getting a better interest rate and loan terms. Other local banks and credit unions would be the next best options for competitive interest rates and loan policies, but these institutions typically cater to applicants with strong credit histories. Don't drag your feet when shopping for your own financing. Once the dealer's loan fails, the dealership will likely contact you daily requesting that you return the car.
Return the Vehicle
If all efforts to find a car loan fail, you must return the car to the dealership. If you do not voluntarily surrender the car, the dealer can repossess the vehicle. If you put a down payment on the car or traded your old car as consideration for the purchase, the dealer will likely return these to you if the car loan collapses. Read the sales contract carefully for specific language regarding the return of your down payment or trade.
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