How Many Days Does a Dealership Have to Find Financing?
Understand how dealership financing timelines work, what happens if funding falls through, and your rights as a buyer in these situations.
Buying a car often involves securing financing arranged by the dealership. Many buyers drive off the lot believing the sale is final, but if the dealer hasn’t locked in the loan, the deal might still be conditional. This situation, known as “spot delivery,” can lead to complications if the financing ultimately falls through. Understanding the process and timelines is crucial for consumers.
Time Period Requirements
When a buyer takes a vehicle through spot delivery, the dealership has a limited time to finalize the financing terms agreed upon in the initial contract. This period isn’t uniform nationwide; it varies based on state law and the specifics outlined in the purchase agreement.
Commonly, dealerships are given between a few days and several weeks – perhaps 4 to 20 days – to secure loan approval from a third-party lender. The exact duration should be clearly stated in a conditional delivery agreement or a financing contingency clause within the sales contract. This written timeframe defines how long the sale remains conditional. The clock starts once the buyer signs the paperwork and takes the vehicle.
Contract Contingencies
Car purchase agreements frequently include conditions, or contingencies. A common one is the financing contingency, making the sale dependent on the dealer securing the agreed-upon loan terms for the buyer. This clause primarily protects the dealership, allowing it to cancel the contract if it cannot find a lender to buy the retail installment contract under the specified terms, such as the Annual Percentage Rate (APR) and loan duration.
Financing contingencies are standard in spot delivery situations. The clause should clearly state that the sale is conditional and detail the exact financing terms the dealer must secure. It also specifies that if these terms aren’t met within the designated timeframe, the contract may become void, requiring the buyer to return the vehicle. For this contingency to be valid, it must be clearly written in the contract or a related document, like a spot delivery agreement, and signed by the buyer. The legal basis generally falls under state contract law, often guided by the Uniform Commercial Code regarding the sale of goods, and consumer protection laws requiring clear disclosures.
Consequences of Unsecured Financing
If a dealership fails to secure financing under the agreed terms within the specified period, the conditional sale typically unravels. The dealer will usually contact the buyer, explain that financing was not approved as written, and request the vehicle’s return. Because ownership often technically remains with the dealer until financing is final under these agreements, the buyer is generally obligated to return the car.
Upon the deal’s cancellation, the dealership must typically return the buyer’s down payment and any trade-in vehicle. State laws often mandate the prompt return of these items, assuming the buyer returns the vehicle in good condition, allowing for normal use during the brief possession. Conflicts can arise if the dealer tries to charge fees for mileage or usage during the conditional period. The enforceability of such fees depends on the agreement’s clarity and state consumer protection laws, which sometimes prohibit these charges if financing is denied. Deceptive practices related to these situations, sometimes called “yo-yo financing,” are scrutinized by regulators like the Federal Trade Commission (FTC).
Another potential consequence involves the buyer’s credit report. The dealership’s attempts to secure financing often result in multiple credit inquiries from various lenders. While scoring models may group these inquiries, their presence remains on the credit report for up to two years, potentially affecting future credit applications even though no loan was finalized.
Options if Financing Is Denied
When financing falls through and the initial deal becomes void, the buyer faces several choices. They are not obligated to accept different, potentially less favorable, terms from the dealership.
One option is to unwind the transaction by returning the vehicle and ensuring the return of any down payment or trade-in. The buyer can simply walk away from this specific deal.
Alternatively, the buyer might still want the vehicle and can attempt to renegotiate with the dealership. The dealer may propose new terms, such as a higher interest rate, a larger down payment, or requiring a co-signer. This constitutes a new offer that the buyer must carefully evaluate before accepting.
A third path is for the buyer to seek independent financing directly from their bank, a credit union, or an online lender. Securing pre-approval elsewhere might yield better terms. If successful, the buyer could potentially use this financing to purchase the vehicle, though the dealer isn’t obligated to honor the original price if the initial contract was properly voided.
Finally, the buyer is always free to pursue a different vehicle from another seller entirely.
Legal Protections for Buyers
Consumers involved in conditional sales agreements have several legal protections. Contract law principles, often reflected in state statutes and influenced by the Uniform Commercial Code, require that sales terms, including financing contingencies and timeframes, be clearly written. Ambiguous terms may be interpreted in the buyer’s favor.
Federal law, primarily the Truth in Lending Act (TILA) and Regulation Z, mandates clear disclosure of credit terms before a consumer signs a contract.1Consumer Financial Protection Bureau. Truth in Lending Act (TILA) Even for conditional sales, dealers must provide written disclosures detailing the APR, finance charges, and payment schedule based on the initially agreed terms. Failure to provide accurate TILA disclosures can lead to penalties.
The Federal Trade Commission (FTC) also protects consumers from unfair or deceptive practices in auto financing, including deceptive “yo-yo financing” tactics.2Consumer Federation of America. The FTC’s Proposed Auto Dealer Rule (Part 1): Yo-Yo Financing Misrepresenting a deal’s finality or failing to clearly disclose the conditional nature of the sale violates the FTC Act.
State consumer protection laws often provide additional safeguards, sometimes mandating specific language in conditional sale agreements or detailing the process for returning the vehicle and down payment if financing is denied. These laws aim to prevent misunderstandings and ensure buyers are treated fairly during the conditional financing period.
