Dealers are sometimes so eager to sell cars that they get you to sign loan contracts even though the loan hasn't been approved. Dealers do this because they believe you may not come back and purchase the vehicle if the approval takes several days, or they fear you may shop elsewhere. In the event your car loan doesn't go through, you must return your vehicle to the dealership.
What Happened
You may have stopped by the dealership at the end of the month to purchase the vehicle, which is usually when dealers are most pressed to sell vehicles. The dealer may believe he can find a lender for you based on a review of your credit, money down, loan term flexibility or stated affordability. Even though you signed what you believed to be a real bank contract, the paperwork is simply printed out from the dealer's computer onto the bank's form. A vehicle loan isn't actually completed until the lending bank receives the contract and funds the dealership for the cash amount of your loan.
Other Options
If your dealer notified you that your loan application has been declined, you may have other options. You can apply to an outside lender on your own to obtain financing or you can find a cosigner. A cosigner goes on the loan application with you to secure your financing. He must have good credit and a job and also make enough money to afford your car payment if you can't make it. While a cosigner can help you to obtain an approval with a better rate, extended term or less money down, finding one may prove difficult. A cosigner becomes liable if you default on the loan or miss payments.
Deposits
If you're unable to purchase the vehicle and have no other resources, the dealer should give you back any deposit you left, even though you must return the car. If the dealer tries to keep your deposit, demand your money back. Hold on to your copy of the contract and vehicle buyer's order. Call your state's motor vehicle department to find out where you can report the dealership. Consumers in this position may be led to believe that because they drove the dealer's vehicle, it allows the dealer to keep their deposit for cleaning, marketing or other fees the dealer may cite as the reason for not returning the deposit.
Warning
If your dealership believed that your loan would go through and it didn't, he may send you into another lender for approval, meaning that loan terms and money down you originally agreed upon could change. Don't put yourself in a position that causes you to go over your budget or forces you to borrow money to put down toward your purchase. Even if you're desperate for a vehicle, not being able to pay for one can result in repossession, which causes significant damage to your credit report.
Misconceptions
If you already signed the contract and have your car but receive a letter from different banks --- or the bank that you believe approved your loan --- stating that your application is declined, call your dealer to clarify the approval. You may have been turned down by several banks before being approved. Dealers send your application into several lenders at once, hoping to get you a lower interest rate or just one approval if you have credit issues. The bank must send you a copy of its reasons for declining the loan. Additionally, loan applications may be turned down at first because of dealer error or before dealer negotiations with the lender; you may have been sent the letter before your final approval. Before jumping to any conclusions, call the dealership right away to confirm the approval of your application.
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