It can be a shock to think you have purchased a used car and the dealer calls up to tell you the financing has not been approved and you must return the car. Under the agreements you signed, the dealer does have the right to get the car back. If you are in this situation, your options may be limited. The best course is to make sure it does not happen in the first place.
Dealer Arranges Financing
A car dealer does not provide the financing to purchase a vehicle. The dealer representative collects your financial information, completes the credit application and sends the application to one or more finance companies to accept the application and provide the car loan.
If the dealer believes the financing will be approved, the car buyer is allowed to take the car. As the car buyer, you signed documents that indicate you understand the dealer will attempt to get financing for your purchase, but if the financing is not approved, the purchase and finance contract is not valid and you must return the car.
Your Credit Determines Financing
With your completed credit application, the dealer will run a credit report to determine your chances of getting a car loan and at what interest rate. If you have great credit, the dealer knows the loan will be approved and will deliver the car on the spot. If the credit score is bad, the dealer will either tell you that you cannot be financed or that it will take some time to see if any lender will accept the application.
It is with credit scores between good and bad that the dealer makes a judgment whether or not the car loan will be approved. Because dealers want to sell cars and know they can get the car back if the loan is not approved, many dealers will send the customer home with the car to “seal the deal” but without final loan approval.
Returning the Car
If the dealer calls and tells you your financing was not approved, take the car back and question the dealer about the problem with the financing. You may be asked to put more money down or accept a higher interest rate and payment.
If you agree to the new terms, do not take the car until the dealer can assure you the financing is approved. If you are not comfortable with what the dealer wants, return the car, get your trade-in and any down payment money returned and try a different dealership.
Avoiding the Situation
If you know or suspect you may have trouble getting approval for a car loan, do not take the car from the dealer after completing the paperwork. Tell your salesman to put your application through the dealer’s finance system and call you when they have an approval.
When the loan is approved, you will know the rate and payment without any future surprises and you can take the car knowing it is yours. The dealer may actually work harder to get you the best possible financing knowing you have not yet taken delivery of the car.