Dealer Wants Car Back - Wants More Money

It happens every day. You buy or lease a car from a dealer. He calls you a few days or a couple of weeks later and wants his car back, or asks you to sign a new contract with higher payments. Is this a scam? Is it legal?

First, let's understand some fundamentals of car financing. Car dealers don't finance or lease cars. When you sign a contract to buy with a loan, or to lease, the dealer attempts to find a finance company or bank that will approve you under the terms you agreed to in your contract. Somewhere in your contract or in a separate document, often called a bailment agreement, this condition is spelled out.

Essentially, it says that you agree to let the dealer arrange your car financing on your behalf, and that, if he can't find a finance company or bank to approve you and accept your loan or lease, then the deal isn't final. In this case, you will either be asked to return your car, get a co-signer, or sign a new contract for new terms that are acceptable to a finance company the dealer has contacted. Most likely, the option to return your vehicle won't be mentioned because the dealer does not want to lose this deal.

This is perfectly logical since the dealer wants to paid for his car and if a finance company can't be found who will accept the deal and pay him, the car still belongs to the dealer.

We often get emails from consumers who are in this situation and they frequently ask if they can simply keep the car and refuse to sign a new contract asking for more money. They assume that because they've signed a legal contract, the deal is done and they can hold on to the car — and get a free car. Sorry, but that's not the way it works. A car dealer simply can't let you continue to drive his car when he hasn't yet been been paid. You would not be able to get title to the vehicle.

How is it possible to get into this problem?

Normally, a dealer will do a quick credit check on potential customers who appear to be serious about buying or leasing. Although dealers don't have a say in whether a customer will be approved for a loan or lease (the finance company does this), they want to weed out "roaches" (customers who have horrible credit scores who will never be approved by a finance company), and not waste time on deals that won't work out.

If a customer has a high credit score, say 720, the dealer knows that any lender or lease company he works with will approve this customer. In this case, there will be no problem with financing.

Now let's consider the case in which a customer has a lower credit score, say 620 or less. The dealer knows this is a potential problem when he sees the customer's credit report. There is a good possibility that this customer will be refused by lenders at the agreed-to contract terms. However, the dealer doesn't want to lose this deal. What does he do?

He hopes he can push it through.

The dealer tells the customer that the deal is good, the customer signs a contract with the agreed-to terms, and the dealer allows the customer to drive away in the vehicle even though the dealer still owns the vehicle (this is often called a "spot delivery").

The dealer knows when he presents the deal to his finance company or bank, the deal will likely be refused and because the customer has a poor credit history and represents a risk, the customer must agree to a higher interest rate and higher monthly payments, or get a co-signer, to keep the vehicle.

The dealer is hoping that he can convince his customer to accept the new deal with higher payments. He hopes that the customer, who has been driving the car now for a few days or a couple of weeks, will have fallen in love with the vehicle and will happily agree to higher payments. Some do and some don't.

What to do?

If it's true that a customer has a flawed credit history and low credit score (see Credit Scores - Know and Understand It for more information), he will almost certainly be required to pay higher interest rates for any of loan or lease, regardless of documents signed in a dealer's office that might indicate better rates and terms.

If a dealer suspects the customer doesn't know about his poor credit score, he may mislead the customer to think he's been approved, when that is not the case, in hopes of somehow saving the deal.

There have been cases in which unethical car dealers have attempted to extract extra profit by telling customers that more money was required based on (false) low credit scores. If customers don't know their own credit scores, this scam can have a high probability of success. Therefore, it is always wise for automotive consumers to know their credit score before entering a car dealer showroom.

So, if your car dealer wants your car back, or asks you to sign a new contract, make sure you know exactly why he's asking and understand that you can either sign the new contract or return the car.

For more, see LeaseGuide.com