down payment after papers are signed
March 16, 2009 9:27 PM   Subscribe

NewCarOwnerFilter: Got a new car, signed the papers (including financing through dealer), and took the car home. Now dealer is telling us that we must put a down payment even though we signed the papers with 0 down.

First time buyer here. We bought a new car through a dealership with their financing option on 0% down over the weekend. Today, they called us and said our financing application was denied by the bank unless we put some down payment. The bank, Chase, apparently denied our application due to lack of down payment even though we have excellent credit (>750). The down payment is not an issue, financially for us.

However, what worries me is that the dealership refused to send us anything official from the bank (email, fax, or mail) and insist that we must go to the dealership in order to see any ‘official’ papers from the bank. When we asked the dealership if we can talk to a rep from the bank, the dealership guy on the phone said that Chase would only talk to the dealership since they’re the one booking the deal.

Anything that we need to worry about or am I being paranoid? Again, the down payment is not the issue as much as the fact that the dealership never stated a down payment is a requirement at the time of sale.
posted by vocpanda to Work & Money (15 answers total) 5 users marked this as a favorite

Take the car back.

Seriously, if your "application was denied" then they should have no problem taking the car back.

Call their bluff. They are trying to STEAL FROM YOU!

If you want to be a real hardon about it, tell them you are only willing to communicate with them in writing and that they should articulate their concerns or request for down payment in a letter.

They won't do that of course because they are trying to STEAL FROM YOU!

Contact your local legal clinic. Hell, call the police and tell them you think that the dealership is trying to commit fraud...
posted by wfrgms at 9:34 PM on March 16, 2009

I believe this is a scam. Here's a link from a fairly reputable website:

And here's the info from that page:

"Scam #1: The Financing Fell Through Scam (Spot Delivery Scam)

How the scam works: This is the oldest trick in the scam book, increasing in 2005. Lots of people complain about to us about this scam. You buy a new car, the "LieNance" manager says you got a low APR, hands you the keys, and you drive home. (Not all finance managers are LieNance managers, just the ones who lie, so salespeople stop whining to me about this name I made up for the few bad apples). Two weeks and 500 miles later, the dealer calls you saying "Sorry, you didn't qualify for that low interest". This is where "subject to financing" clauses on contracts bite you in the butt. Everyone thinks that you sign papers it's a done deal. The dealer knew exactly what you qualified for before you signed, unless you lied about your income.

They knew your credit score. If it's above 680, you'll get a low APR. If it's below 680, expect a higher APR. Your credit union will print your credit history and approve you in 10 minutes. I got approved instantly online. So why the problems with the dealer's Retail Installment Sales Contract? There usually is no problem, it's a scam. There is a phrase on most sales contracts stating "subject to loan approval". This Jedi mind trick means: "The deal is not final, even though you signed this contract." They'll tell you that you must produce an additional $1000 AND your payments would go up. They pull this scam on people with bad credit, because it's believable. They get the least resistance from this crowd, and figure you'll just pay up somehow.

How to avoid the scam: DON'T FINANCE AT THE DEALER if you have bad credit. Line up your own financing and compare to dealer's financing. Read our chapter on How to finance your car or use online car financing or your credit union instead. By using your own financing, you won't endure monthly payment scams, and the deal will be based on the selling price of the car, not monthly payments. If they start negotiating the car by monthly payment, it's time to leave. If they keep trying to shift your APR up or down depending on whether you buy a warranty or VIN etching, it's time to leave. But if you do finance through a car dealer, leave a deposit on your credit card, and do not take delivery of the car until the loan has been approved in writing a few days later. Then you know the lender has approved your loan. The dealer hands you the keys and say it's all right to drive off right now with the car, but don't do it. For buyers who lease, dealers sometimes call you a week later and claim they "made a mistake and you need to come back and sign a new contract." WRONG. Your lease is a contract, and the dealer cannot make you undo a contract. Just think, if you tried to get out of a lease, they would come after you in court right?

What to do if this scam happens to you: If you you got a good price on the car, your best solution is to preserve your deal so get your own instant financing online. If you have a credit score over 650, go online right now to Up2Drive and apply online, and get approved within the hour. They will FedEx you a check the next day, you'll take it to the dealer to pay for your car, now you have a car loan, no "financing fell through!" If your score is below 650, then apply through AutoCreditFinders instead. If the dealer refuses your online check, you should try to get out of that deal. File a complaint with the Better Business Bureau at, and file a complaint through your state's Attorney General Web site. They are all aware of Spot Delivery Scams."

That being said, I don't know how well Up2Drive is, so your mileage may vary.
posted by davidamann at 9:40 PM on March 16, 2009 [4 favorites]

Getting a lawyer is pretty sound advice, the law is probably very grey in this area. Remember, just because the dealership put the language in the contract you signed doesn't mean that clause of the contract is legal, and it would probably go in front of a judge if it came down to it.

Take the car back, maybe drive it around some more so its got more than 100 miles on it. Tell them you don't want it anymore, you want your trade in back (if you had one).

Or get some alternate financing for the difference for the amount owed and show up (not in the car in question, a different car, have a friend drive and witness the entire thing) and tell them to take the check or they can come get the car from you.

Have you called Chase yourself? Tell them you're looking to finance it and you want to see what they can offer.
posted by SirOmega at 10:25 PM on March 16, 2009

Yeah, this is pretty screwy. It's a pretty common (and shady) tactic. If you have the means to talk with an attorney, even if it costs you some money, it wouldn't be a bad idea. And you can call the dealer and tell them, "Hey, I'll be there in a day or so - I need to talk with my attorney first so that I know what my rights and responsibilities are under the paperwork I have." If they're playing dirty pool, that may get them to straighten up their act. Another thing you might want to do is give the Attorney General's office a call. Depending on the AG in your state, some of them really, really like to go after car dealerships.

If you can get out of the deal legitimately, do it. Don't reward their behavior. If you can't, then get your financing elsewhere, such as at a credit union. The dealer gets a cut of your finance charges in most cases, so they want you to finance through them. If you end up getting your loan yourself, they lose money. The suggestion was made upthread to call Chase directly. That's not a bad idea.

Be careful about putting extra miles on the car if you think there's a chance you'll give it back. In many cases they can charge you a rental fee, and charge you per mile.
posted by azpenguin at 10:46 PM on March 16, 2009

I had something similar happen to me with my first car purchase. I was seconds away from being handed the keys and they told me there were "financing issues" I had to work out with them (which would have cost me more, naturally… funny how "issues" never seem to work out in your favor).

Anyway, I walked. I said, "Thanks, but no thanks," and started walking the two miles back to the train station—since I had to take a train to even get to the town that was selling my car (I didn't own a car, natch). They were the ones who had picked me up from the station, so I imagine they must have thought I was pretty pissed to start hoofing it back on my own two legs. Long story short, a minute after I arrive at the train station, a guy from the dealership comes driving up telling me that they had "worked through" the financing problems and we were good to go.

This is not how financial transactions are supposed to happen in this country.
posted by Civil_Disobedient at 3:28 AM on March 17, 2009 [2 favorites]

Former car salesman here (for a reputable dealership).

This is not necessarily a scam, and the dealership is not necessarily trying to screw you. This happens ALL the time. Thing is, if the dealer is fairly confident that you will get approved by a bank for your financing, they will let you take the car home before the bank gives final approval. Sometimes, for whatever reason, the dealer misjudges, and the bank(s) come back and say no to the package the dealer proposed (0%, no down payment, whatever). At that point, they will try to make the package more attractive to the banks (offering a down payment, raising interest rate).

Your choices here are 1) return the car, 2) bring the down payment, or 3) secure your own financing.
posted by tryniti at 4:37 AM on March 17, 2009

You should talk to a credit union or (failing that) a bank about what they can offer to finance the car. To get an apples-to-apples comparison, you probably should look at financing with a down payment (not sure if you'll have to guess at the amount or not; if you do have to guess, get a couple of different sets of figures from the credit union).

Then you're in a position to go back to the dealer and, if you don't like what they are offering via Chase, tell them that you've found your own financing, then see what happens.

I'm reluctant to call what the dealer does a "scam", and I think those who suggest calling the police (who would just laugh) or hiring a lawyer (expensive) are incorrect. But it's possible that the dealer is simply trying to make more money on the sale; if you were offered (say) 7% financing, no money down, then you might also have qualified for (say) $2,000 down, 6.5% interest. If the dealer can talk you into (say) 7%, $2,000 down, then the dealer almost certainly will get more money from the bank (as a commission) for that. And there certainly are dealers who use this trick, figuring that the buyer isn't going to walk away from the deal for just a little more money.

Finally, beware of the "how much would you like to pay per month" approach. If the deal that you had arranged was (say) for 60 months at $399 per month, and the dealer offers, with a down payment, to reduce that monthly amount but for (say) 66 months, the only way to tell if that really is a good deal is with the APR. (That's way disclosure of the APR is required by law.) If the APR has gone up, it's no deal at all. And, of course, the longer the loan period, the more likely that the vehicle will be worth less than the loan amount at some point in the future when you want to sell or trade it in (or, god forbid, it is totaled in an accident and you find out that your insurance company will pay you the value of the vehicle, which is less than what you owe).
posted by WestCoaster at 6:18 AM on March 17, 2009

This is not necessarily a scam, and the dealership is not necessarily trying to screw you. This happens ALL the time. Thing is, if the dealer is fairly confident that you will get approved by a bank for your financing, they will let you take the car home before the bank gives final approval. Sometimes, for whatever reason, the dealer misjudges, and the bank(s) come back and say no to the package the dealer proposed (0%, no down payment, whatever). At that point, they will try to make the package more attractive to the banks (offering a down payment, raising interest rate).

I'm sure that's true. Consumer financing is a tricky business.

However, one issue is the incentives that the dealerships get for selling financing. There are various products they have available to sell, from various sources. The "Business Manager" guy that you go to sign the paperwork with, his job is to extract the most profit from the car sale as possible. Obviously, they make more money if they can sell you financing that's more expensive.

What I imagine has happened is that after completing the sale with you, the numbers people looked over the contracts and determined one of a few things:

1- You really didn't qualify for the credit. If your credit is really 750, that's fairly unlikely. Or it's possible, I guess, that you did qualify, but the lender doesn't have the cash available to fund the purchase. I believe the law requires they provide documentation as to why you were turned down for the loan. If this really is the case, they have a fax or an email that says so.

2- The loan they sold you wasn't as profitable as some other loan they have available. It's possible that it is in both of your best interests to work the new loan- if the rate and terms are the same, putting $1000 down reduces your payments and the cost of the loan to you. And gives the dealership more profit. If that's the case, work them for a deal. Say something like "hey, if you guys are making extra money, share the wealth. I'll give you the $1000 if you knock $500 off the price of the car."

3- They are indeed simply trying to work you for more money. Maybe the sale price of the car was too low for them to make as much money as they wanted. In this scenario, you probably have to play hardball. See if you can get approved for alternate financing through your bank. Might not be as good of a deal as the 0 down, but you can use it as a bargaining chip. Walk in there and say "guys, we had a deal, I expect you to live up to it." If they say no, tell them you have alternate financing and will get them a check for the agreed upon price. This will encourage them to do the deal as written, or at least find you a better deal than your bank will give you.

(I just don't buy the "oh, we *thought* you'd get approved" line on its own. We live in a time of technological wonder. Even 10 years ago, I worked at a place that sold financing for computers. We could fax in an application and have an answer back in 5 minutes, for an $800 purchase. I have no doubt that car dealerships have similar access, especially when you are talking about deals in the tens of thousands of dollars. They aren't stupid- they aren't going to hand you the keys to a vehicle unless they KNOW they are going to get paid for the vehicle some way or another.)
posted by gjc at 6:44 AM on March 17, 2009

Assume it's a scam. Assume they are trying hard to screw you. Be calm, courteous and document everything. Explain that you agreed to purchase the car at the financing offered, and are happy with that. Use the car to drive around and find some other offers. Go back to the dealer, and say, "I have some other offers, but I'm happy with this car at the offered deal, so let's either find a way to make this deal work, or here's the car back." The power of being willing to walk away from a car deal cannot be overestimated.
posted by theora55 at 6:55 AM on March 17, 2009

The 0% offer was just to get you in the door. Dealerships make as much or more off of financing as they do from profit margin. Odds are they never intended to give you 0%. They hoped you wouldn't qualify or and then they pulled some shenanigans.

I'd say to get a lawyer, but the cost of that may outweigh the benefit. Is it worth a couple hundred bucks in legal fees? Maybe, but try to handle it on your own first, keeping the legal card in your back pocket if things get out of hand. Take the car back and tell them that you signed the contract with the understanding of the deal as 0 down, 0% interest. If they can't do it, they can keep the car. I'm sure there's another dealership a few miles away that would like your business.

In this economy, aren't the dealerships hurting for any business at all? Why do they have to be jerks to the people who want to simply exchange money for an automobile, no extra complications?
posted by JuiceBoxHero at 8:14 AM on March 17, 2009

Whoops, take out the 0% interest part... the rest holds.
posted by JuiceBoxHero at 8:16 AM on March 17, 2009

Response by poster: Thanks guys! All really good information.

I do have a question though, the dealership stated that they can not (or perhaps, will not) give us any documentation from the bank on why we were denied. They can only 'show' us this if we drive down to the dealership.

Is this a common practice? I can see how the bank will deny us if we put 0% down (especially in this economy), however, I would think that we have the right to see *and* get a copy of why we were denied.

We definitely going to call the bank but I do want to get a feel on if this is common or not. Plus, I like to have time to review the documents prior to going into the dealership again, especially if they draft another contract for us to sign.
posted by vocpanda at 9:38 AM on March 17, 2009

I had a similar experience in 2002. I bought my first new car, a Honda Civic, from the Honda dealership in Charlottesville, VA (the one up 29 a little ways). Put $4,000 down up front, got what I thought was a financing plan, along with a "good student" bonus or something. I had to bring an actual copy of my MA diploma to do so.

Part of the reason I bought the car when I did is that the next week I was going to teach at a high-school student poetry workshop at my old college in Ohio, and I wanted to drive myself there.

I got a "frantic" phone message via a college secretary that I actually didn't qualify for the "scholarship discount" after the fact, and that I had to contact the dealership immediately to adjust my monthly payments.

Total scam. I had financed through the dealership, and hence through Honda USA, so I contacted them (that's who sent the bills, and that's where I sent the checks). The person I spoke with at Honda USA said they were quite happy for me to begin making the payments at the agreed amount each months (about $300/mo. or so).

Being younger and maybe a bit dumber, I simply ignored most of the "frantic" phone message I got from the dealership, in no small part due to the fact that I was about to move to Baltimore for my new job at the time. I made my initial monthly payments, and after about two months the phone calls from the corrupt dealership stopped.

Should I have looked further into the issue, lest I suffer the wrath of the repo-man? Probably. But after talking to Honda USA about three times, I was told that there were no problems with my financing. I was pretty polite with the dealership, and kept telling them, "Hey, just talk to Josephine at Honda USA, she says it's all good."

So, I'd try playing hardball with the dealership, and being sweetness and light with your financing bank. You might need a lawyer, but ultimately I didn't.

And I loved that car until I sold it to a Honda dealer in Bellingham, WA before moving to Korea. But it just goes to show you that even very good companies like Honda (IMO) can suffer from shit-bags at the retail end.
posted by bardic at 9:46 AM on March 17, 2009

Don't drive the new car back to the dealer if you decide to inspect their documentation. The fact that it isn't on their property means they can't unlock it and park it in an area you cannot get to.
posted by bach at 9:42 PM on March 17, 2009

Response by poster: Update:

It turns out our loan was denied because this is our first auto loan and not due to our credit scores or any other financial reasons. Our original option was to put down payment in order to get the loan (same contract, same interest, new principal amount = original principal - down payment).

In the end, the dealership was able to compromise between our needs and the bank's needs. We can either put the down payment to the bank or the dealership will give us an extra service / feature if we reallocated the "down payment" amount to the dealership. This "down payment" amount is still financed.

This allows our overall cost to be the same, no down payments, and we get an extra service / feature. I think this is mainly to give us incentive to keep the car rather than to return it as this dealership has one of the highest amount of cars sold in our state.

Thanks all! In the end, it worked out great without too much hassle.
posted by vocpanda at 1:21 PM on March 30, 2009

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