How to Spot and Avoid the Yo Yo Financing Scam and Spot Delivery Scam

April 8, 2019

Even if you just found the car of your dreams, your dealer should never let you drive it away without first getting your finance application approved and paperwork signed. Before you go to the dealership, check out our quick guide on how to avoid a yo-yo financing scam.

Like any big purchase, looking for a new car can be stressful. You need to be somewhat savvy to ensure you’re getting good value on a car that you can depend on. There are lots of pitfalls. One such pitfall is the yo-yo financing scam. If you’re not sure what a yo-yo financing scam is, read on to find out more, including how you can avoid falling for such a sneaky tactic.

What is a Yo Yo Financing Scam?

Simply put, a yo-yo financing scam (or a lost financing scam) is when a car dealer lets a buyer take possession of their new vehicle before their agreement is signed. It’s called “yo-yo” because the dealer drops the car and then yanks on the string and pulls the car back.

Imagine yourself going through the credit check process at the dealer, and they give you the contract to sign. You do so, but then a few days later, you get a call from them saying your financing “fell through” and now you have to return the car or sign a new financing agreement at a higher rate and bigger down payment. It’s a devious sales ploy that originates from the spot delivery technique.

What is a Spot Delivery Scam?

Have you ever gone car shopping with a clear intent to buy? If you’re really fired up, you might be determined to drive away with a vehicle that same day. A shady dealer may notice your enthusiasm and try to sell you a vehicle on the spot before you’ve even signed anything. The dealer gives the impression that the car belongs to you, but it doesn’t since your financing has not been approved yet.

No matter how excited you are about buying a new car, experts recommend you keep a poker face when you’re in the dealership. Many salespeople often pick up on buyer cues and amend their pitch accordingly, so it’s important to keep your impulses in check and enthusiasm under wraps until the deal is done.

Who Is the Target of Yo-Yo Financing Scams?

Anyone can be, but there are specific risk groups. If you’re going into a dealer with less-than-stellar credit or no credit, then, unfortunately, you’re a prime target for a yo-yo scam. These scammers will prey on your seemingly uninformed perspective. New Canadian immigrants, very young or the elderly and even some minorities are frequent targets as well.

If you think you might be a target of a yo-yo scam because of any of these increased “risk factors,” bring someone with you. They can be a sounding board and a voice of reason in the intensely emotional experience that is buying a car.

Warning Signs of a Yo-Yo Financing Scam:

  • You have no idea what your interest rate is. It should be clear as day on your paperwork.
  • You’re being offered an insanely low-interest rate (under 1%), and you know you wouldn’t qualify for it. (Please note: Under 1% is possible, but only if you have an enormous down payment or your credit is exceptional.)
  • The form you’re signing says “conditional.”
  • The dealer is ready to hand you the keys before you even sign anything.
  • If you are asked to sign something, a lot of fields are left empty.

How do I Protect Myself from a Yo-Yo Car Scam?

If none of the warning signs are there, you should still exercise caution. You can protect yourself against a yo-yo scam by:

  • Confirming your loan rate before driving the vehicle off the lot.
  • Getting copies of every document you’ve signed.
  • Making sure every field on the form is filled in.
  • Taking your time to read the entire sales contract.
  • Not trading your car in until everything’s officially set in stone. They may hold onto your car until you agree to the higher terms.
  • Getting pre-approved from another lender ahead of time.

However, if any of the noted warning signs come into play, the choice is very simple—don’t take the car! Demand that the financing terms be adequately finalized, and even mention your concern at what you’re being asked to do.

If the dealer gets pushy, leave. They can’t force you to drive the car. They can’t force you to sign anything. And now that you’ve gotten a glimpse into how that dealership operates, you can easily cut the cord with nothing lost to you.

The loss would be completely on the dealership or salesperson who tried this wretched tactic. Simply walk out and don’t go back.

What Do I do If I Get Scammed?

If you're one of the unlucky ones who drove the car away on the basis of a conditional offer, don’t fret yet. You can unwind the deal by just bringing the car back. If you provided a down payment, you will need a cheque returned from the dealer when you hand the keys back.

You may love your new car and want to keep it. But trust us, you won’t love your new finance deal. Return the car, find a dealership you can trust, and get approved for a fair deal.

Canada Drives can protect you from a yo-yo financing scam. We pride ourselves in working with reputable and trustworthy dealerships. By being pre-approved with financing, you can walk into a dealership with confidence and security. Check out our application today to get started!

If you’re currently browsing the car market and found this article helpful, read our post about avoiding defective “lemon” cars. It offers practical, step-by-step advice on buying a pre-owned vehicle you can depend on.

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