Posted on 02/19/2009 6:03:31 PM PST by fightinJAG
Legislation solidifying the right of car dealers to repossess a just-sold vehicle if the buyer's financing falls through has hit a snag in the General Assembly.
The Senate Transportation Committee unanimously endorsed the bill Thursday, but added a clause requiring the assembly to pass the bill again next year before it takes effect.
(Excerpt) Read more at hamptonroads.com ...
So now you get to buy a new car (likely with a guvmint subsidy), drive it off the lot and if your financing falls through, you get to keep the car.
Sure, dealers can go back to the policy of not letting the car leave the lot until everything is signed, sealed and delivered. But dealers developed these more lenient policies as incentives to sell cars-—and aren’t incentives very necessary right now?
This is as slimy a scheme to rip people off as it gets.
Why let them take possession until it’s confirmed.
“Why let them take possession until it’s confirmed.”
It creates a new, very large, revenue stream.
What’s the big hurry?
Why can’t people just wait until the financing is finalized and the money is cleared before the buyer takes possession?
Having been around a few car lots, this is a law really not needed. I have never heard a car going to anyone before the financing is complete.
Why can’t people just wait until the financing is finalized and the money is cleared before the buyer takes possession?
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Most of the time the dealer hasn’t really explained that the sale is contingent on financing approval , they tell the buyer to enjoy their new car ,, buried somewhere in the pile of paperwork they signed are 2 things ,, giving ownership of their trade to the dealer and the clause where if the financing fails the buyer owes the dealer some exhorbitant fee for wear/tear and mileage on the car they were handed. The dealer may shop the loan to multiple banks and get approval at each bank but at an interest rate that only gives the dealer a small profit (for instance they are approved at 8.5% and the dealer quoted the buyer 10% on the loan , dealer is unsatisfied with only 1.5% for them and tells the buyer their financing fell through) by this time the dealer has sold the trade in so the buyer is “de-horsed” ,, old car gone and new car taken back ,, if they’re lucky the dealer will refund the money he got for the trade after faking expenses on his behalf for “reconditioning” ,,, most of the time they will work the numbers so the buyer has to buy his trade back!
Having been around a few car lots, this is a law really not needed. I have never heard a car going to anyone before the financing is complete.
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I’ve been around more than a few car lots ,, I would say that at least half the cars driven off a new lot still have the financing pending.. this is known as a “spot” delivery.
Thanks for the education.
The last time I bought a car- 10 years ago- I instinctively knew that it was a wise move to get an auto draft before going out to shop for the car in order to simplify the matter.
Pre arranging financing seemed like just common sense.
What makes it so slimy is that the dealer retains ownership of the new car so it will be resold as new to someone else if it is turned in after a financing problem , and yes it is EASIER to fix a digital odometer today than it ever was to fix a mechanical one.. although I’m sure no dealer would ever buy such a tool from dashpro.com ...
Pre arranging financing seemed like just common sense.
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Of course it is ,, and it will get you a better deal on the car too ,, as long as the dealer assumes you will finance through them they will negotiate the sales price down a bit more thinking the F&I man will make it back...
The bottom line is that no dealer wants you to leave without buying and they will take any shortcut imaginable to keep you from buying elsewhere, they will pull a credit report and they know which banks will accept you and at what rates ,, repo’ing new cars is really only a problem if for instance the dealer pulls a credit report from agency “A” and the banks use credit reporting agency “B” or “C” and the score or a line item on the other companies report causes the rate to jump making the loan unprofitable for the dealer.
Secondary financing is drying up all over the country.. pretty soon all you’ll see is new franchise dealers and “buy here pay here”.
I agree 100% ,, I only buy used and never from a dealer.
This is a slimy scheme to rip off dealers, isn’t it?
No. It’s an old scam, reborn.
Dealers would roll the car knowing you would be turned down by the company you thought you were being financed through, and they would have to use a “mouse house” to finance you. Then, they’d call you at home and demand more cash money down plus a fee.
Or, they would just come and self repo the car, and then charge you exorbitant fees to get it back. If you didn’t (usually couldn’t), they would sue you. Now, they have the car back, which more often than not, they would sell as new again, and they’d have a judgment against you, as well.
Another trick was to tell you that they had “one last” hope to get you financed. It’s what we called a “mouse house”, a finance company that specializes in financing bad credit/high risk borrowers.
It works by “discounting” the paper (contract) by a percentage. i.e. You borrow $1000.00, and the discount is 10%, the dealer only gets $900.00, and you pay back the original grand at a very high rate, usually 12% add on, which is usually 21.99% apr.
Where’s the missing $100.00?
The finance company pockets it up front as a fee. The dealer hides it in the price, or gets it from the customer in the down pymt. Either way, the price has to go up to cover it.
That’s the simplified explanation, it gets even uglier in practice.
Take a combo high risk deal. There is a discount, and a reserve, and a dealer’s participation involved.
i.e.
Amount financed is 10k.
The discount is 15%, $1500.00.
The reserve is 10%, $1000.00.
The participation is 3%, $300.00
Total of 28%, or $2800.00, of the amount financed.
The customer is really paying 10k for a (maybe) 6k car that the dealer is getting (on the books) $7200.00 for. Don’t forget, in most States you have title, doc fees, prep, delivery (trans chgs), and taxes to add to the selling price to get it up to the 10k.
The discount, the finance company pockets up front.
The reserve is held for a negotiated length of time, then returned (without interest) to the dealer if the loan terms have been met up to that point, usually half the length of the loan, depending on the customer’s credit, job, renter or owner, etc. If not, then the finance company keeps it.
The participation is paid to the dealer as a commission.
You can see where there is a windfall to be made on these type of deals.
Thank you for the very excellent and detailed response. That was helpful.
You’re welcome. If I can be any more help in this regard, please PM me.
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