Financing fallout: What you need to know about buying a car

FORT MYERS, Fla. – In the market for a new or used car and cannot pay cash? Experts suggest lining up your financing first, before ever stepping foot on a car lot.

A few months ago, Emily Labovitz and her fiance Jesse decided it was time to get a second car.

“We had saved up some money and were just tired of sharing a car and we thought now is the perfect time. We were both employed and we needed two cars to get to our jobs and live life as normally as we could,” she said.

When they saw the vehicle they wanted in their price range, they negotiated what they thought was a good deal.

“The car was the perfect price for us. And then they said that we were able to get the loan through our credit union that we already bank with and they gave us a really great rate on it,” Emily recalled.

That great rate the dealer presented her was for 2.25 percent for 72 months. She and Jesse agreed to the terms and signed to buy the car.

“We thought everything was finally going great for us. We’ve got two cars, you know we’re not going to have to drop each other off at work anymore or struggle to get a babysitter,” said Emily.

But that all changed three weeks later when Emily said the dealer called her up and said the couple needed to bring in more financial documents. The couple brought the car and their documents to the dealer.

“That’s when they kind of dropped the bomb on us and said, ‘well the bank took back their loan on you,’ ” she said.

Emily was given two choices: hand over the car or sign a new finance agreement with a 19 percent interest rate.

Local lawyer Carmen Dellutri of the Dellutri Law Group said what happened to Emily is commonly called yo-yo financing.

“Imagine you’re going in to buy your car. You think you’re going in to buy a car. You think you’re going to walk in and purchase your car and leave that day. What you don’t realize is that most car transactions or contracts are conditional,” he explained.

That means if the financing does not go through, the contract is not valid.

“Why do you think this happens? Well I had a deal right? I left and I had a deal. No, you didn’t. You signed a form which says this contract is contingent upon financing. If it’s contingent upon financing and the financing doesn’t go through, that’s a condition precedent to the contract under Florida law. So if the contract precedent is never met, you have no contract, bring the car back. Or be subject to that additional financing,” explained Dellutri.

He also says the practice is legal.

“There’s nothing illegal about having a condition precedent to a contract. But you’ve got to understand it. The consumer needs to know that my financing is not complete and there’s no disclosure of that anywhere except that this is a conditional contract,” he explained.

Dellutri’s advice? Get your financing lined up through a bank first before shopping for a car.

“You’re never going to want to finance it or sign anything until you have a guarantee of how much this car is going to cost, who you’re going to be making your payments to and when,” he said. “The best way to do that is to talk to your own bank. Get an honest opinion before you ever walk onto a car dealer’s lot.”

For more information about car financing and about buying a used or new car, go to the Federal Trade Commission’s site.