What is a yo-yo sale?

You really want a new car. You saw an advert with an awesome deal. Off you go to the dealership. You negotiate a deal and, what joy, you can take the car home immediately. The dealership tells you that they got you financed. Why not enjoy your new car? You drive it to work. You show it to all your friends. You love it!

Then you get a scary phone call. “I am really sorry, but we weren’t able to get the financing approved.”

This is a classic swindle called the “spot delivery” scam, also known as yo-yo financing. Some also call it “bait-and-switch financing.” The dealer lets you go, and then, yank you back just like a yo-yo on a string.

It is a practice that often targets people struggling to make ends meet, inexperienced buyers or those with bad credit.

It can work in one of two ways:   The dealer wants a second shot at negotiating a deal that you thought was already settled. But now, he can add pressure. The hope is that after a few days in your new car, you’ll be unwilling to give it up, even if that means you have to pay more money. Some dealers will therefore complete the deal with approved financing and then call you anyway. In some of the cases, the deal you negotiated at first was never submitted for approval.

Sometimes that dealer would let you believe that financing is not a problem, whereas he could see you had bad credit while you were at the dealership. Now he will call you and falsely claim that you must sign a new financing contract, often with less advantageous terms. You may find yourself looking at a higher interest rate than you originally agreed to, or facing pressure to buy additional insurance products.

Why do dealers engage in yo-yo financing?

It’s all about money.

Sometimes dealers get kickbacks from lenders, in exchange for a higher interest rate loan. The higher the interest rate you pay, the more profit the dealer makes. The dealership might purchase the contract at 12%, but tells you the sale was written at 15%. He then pockets the difference.

The dealer can also know that financing was approved for you at 15%, but offers you 12% during the first set of negotiations.   You are happy. Then he comes back with an 18% rewrite – you are already hooked, so you take it, he pockets the difference.

Jim may claim he made an honest mistake. He might say he’ll be fired or that the money will come out of his paycheck. If you resist, Jim may turn to bullying: threatening to report the car as stolen or accusing you of trying to swindle them. Don’t be fooled, it’s all about money.

How do I know that I am entering the scam?  

Look out for this type of wording in your Retail Installment Sales Contract:

“You understand that it may take a few days to the Seller to locate financing for you on the exact terms shown of the front of this contract and assign this contract to a financial institution. You agree that if the Seller is unable to assign this contract … the Seller may cancel this contract…”

Contrary to what they may lead you to believe, car dealerships do not finance car purchases by themselves. They go to a third party to get financing. There’s simply no legitimate reason for a dealership to allow a customer to drive away without approved financing. Even at night and on weekends, automated systems can provide credit approvals for most customers.

Yo-yo dealers use the sales agreement to allow them to find a buyer for the financing deal they made with you. If they can’t find a lender to take over the contract, they can cancel the deal. If they do find a lender, they can use him for their own gain.

If you can’t get immediate financing for any reason, it might be that you are getting scammed.

“You may have the option of negotiating and signing a new contract with different financing terms.”

This only means that your initial Retail Installment Sales Contract is worthless. It is only used to bait the buyer, while the dealer decides whether to switch the buyer to a more profitable Retail Installment Sales Contract.

Be aware: if you are not getting the paperwork to take home.

If the deal is later rewritten with new terms, the dealer does not want the consumer to have more than one set of papers that would allow them to see how much worse the second deal is.

A dishonest dealer may tell you that the contracts contain propriety information, so you can’t have a copy. Wrong answer. You have a right to a copy of any document you’ve signed.

How to avoid a yo-yo scam

  • Arrange your own financing. No dealership can force you to only work through them. You can get financing from a bank, a credit union or from a family member.
  • If you know you have bad credit, be wary of deals that sound too good to be true.
  • Do not sign a contract unless it is completely filled out. Beware of contracts stamped or titled “conditional” or those that have “conditional delivery” clauses.
  • Never, ever, ever drive your new car away from the dealership until the loan is finalized, you have a fully filled out and signed contract, and the car is registered and insured in your name. 

I have been scammed. How can I fight back?

You may call the bank that turned your financing down (as the dealer claims) and verify if this is the case. If your financing was actually rejected, you have a right to speak to the financing company about it.

Or, just give the car back.

Laws vary from state to state, but generally speaking, either you bought the car or you didn’t.

If you did buy the car, you must have a signed, legally-binding contract. If the car is registered and insured in your name, then the dealer must honor its terms. If ownership was transferred, you must have a title document.

If you did not buy the car (a true spot delivery without approved financing or transfer of ownership), you can return if for a refund of your deposit and a return of your trade-in.

It doesn’t matter if you’ve been driving the new car; the dealer essentially loaned it to you. Miles and wear-and-tear on it, that’s the dealership’s problem, not yours.

Do not offer or agree to pay any more money. Do not accept a new contract. There are only two acceptable outcomes: Either you will take the car home on the terms to which you originally agreed, or you will return the car for a full refund of your deposit and a return of your trade.

Be aware what you sign.

Make sure you read every document you are asked to sign when purchasing a vehicle. Ask to take home a copy, front and back, of everything you’ve signed. Never sign any documents that aren’t completely filled in. If there are spaces that are left blank because they’re not relevant to your transaction, put a line through them.

Seek out a consumer lawyer

If you suspect that you entered a yo-yo deal, call a lawyer right away, preferably one who specializes in consumer law. Don’t be put off by the potential cost. Many will provide a free initial consultation.

In some cases, you may be entitled to collect legal fees and punitive damages.  You will need a lawyer if you want to take this further. To take on a yo-yo case is not easy, because judges have to be educated why standard industry practices violate various consumer laws.

Contact a lawyer immediately if the car dealer sues you; if he cancels the contract but refuses to return your down payment or if he repossesses the car.

This information in this article does not claim to cover all the aspects of this type of scam. It is not legal advice – each case must be looked at individually. Please contact a consumer lawyer to assist you further.

I used:





“Successful challenges to Auto Dealer Yo-yo abuses” – Journal of Texas Consumer Law. Volume 6, Term 3, p 94-96. Published by the Centre of Consumer Law, the University of Houston Law Centre.

“Spot delivery is anticipatory theft and always violates the truth in lending act.” – Raymond G. Ingalsbe, Florida.