Tips for avoiding yo-yo auto financing

Tips for avoiding yo-you financing

Walking into a dealership with so-so credit can make anyone wonder if they are going to be able to actually leave that day with a vehicle and a car loan they can afford. In some cases, you may be so thrilled that a contract is even presented to you, that you start signing away and are able to walk out with a car. However, this can easily backfire on you, and all of a sudden you may find you have fallen victim to "yo-yo financing."

What is yo-yo financing?
Yo-yo financing occurs when a dealer lets a car buyer, usually someone who does not have stellar credit, to take their new car home even though their financing has yet to be approved. This can result in the new buyer having to return the car to the dealership if the financing does not go through. You will either have to bring the vehicle back or pay a higher rate – and if you don't, they could end up repossessing the vehicle.

There have been laws set up in certain states to avoid this from happening to car buyers. For instance, some require the dealer to give whatever the prospective owner put down, but other states do not. Even though many dealers do not believe in yo-yo financing, there are plenty who participate in it. So, it is important potential car buyers are well aware of the practice.

How to avoid being on the spot
Yo-yo financing, which is also considered "spotting," can be avoided. First of all, it is a good idea to try to do all your financing before you even arrive at the dealership. This way, you are able to find the car you want without any of the added pressure of applying for a loan, and you will already know what to expect from your monthly auto loan payments. It is also possible to get a better deal outside of the dealership,"as dealers are known to offer financing options that may be less beneficial to the buyer in order to make more money.

In addition, you should make sure to read the contract carefully. Do not just sign it because you are able to walk out that day with the car you wanted, since you may find out soon enough that you have to return the vehicle.  

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