Lemon Law Attorneys Blog

A yo-yo car sale is a kind of bait-and-switch scam when you are promised a certain interest rate on an auto loan but wind up paying a higher interest rate or making a bigger down payment to get the promised rate. These sales are called yo-yo sales, because the car dealer reels you back in with different—often less favorable—financing terms.  Here’s how it works.  Sometimes, a car dealer will try to complete a sale while they have you in the showroom before they receive approval for an auto loan at the promised interest rate—really, before it has lined up a lender to buy the loan at an acceptable rate to allow for the dealer’s desired level of profit.  As an example, the dealer might tell you the interest rate will be 7.99%, but the dealer tells you that only because it thinks it can actually get financing at 5.99% and keep the difference as profit.

In yo-yo sales, the dealer will tell you that you have been approved for financing at a certain rate, have you sign the sales contract at that rate, and let you take the vehicle home, even though the dealer doesn’t know whether it can sell the loan for an acceptable profit.

If banks decline to buy the loan at a rate that gives the dealer enough profit, the dealer will tell you that the financing fell through and you need to come back and sign a new loan agreement—that is, reel you back into the dealer. Because it couldn’t sell the loan at an acceptable profit level, the dealer will tell you that you can only get financing at a higher rate or if you put more money down.  This means that although you agreed to buy the car at a lower interest rate, you ultimately cannot buy it at that rate and might have to pay more for the car than promised in the original contract. The dealer believes that at this point you probably have become attached to the car and are willing to pay more for it to avoid the inconvenience and embarrassment of having to return it. 

Financing agreements usually contain fine print that allows the dealer to cancel the sale if it cannot sell the contract to a lender for sufficient profit in order to give it cover to pull the yo-yo scam. If you refuse to play along or if the dealer determines that it ultimately will be unable to make an adequate profit from the sale, the dealer might resort to some other scams such as trying to keep your downpayment or trade-in vehicle or threatening to report the vehicle as stolen if you don’t return it.

If you are a victim of a yo-yo sale, read the fine print of the contract.  Sometimes, the contract gives the dealer only a certain amount of time to cancel the contract. In California, the contract usually gives the dealer only ten days to cancel the sale. If the time to cancel hasn’t expired, the dealer can cancel the contract. However, you are not obligated to sign another contract. If the dealer decides to cancel the contract and has the right to do so under the contract, then it is usually best to walk away from the sale. Make sure the dealer gives you back your full downpayment as well as your trade-in vehicle.  If the dealer has already sold your trade-in vehicle, you are entitled to the fair market value of it, which may be different from the trade-in value the dealer gave you.  The dealer most likely gave you less than it was worth so that it could make a profit from selling it to someone else. Finally, try to arrange financing on your own before you go to another dealer to buy a car to avoid getting caught in another yo-yo scam.