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Help! I Just Bought a New Car, Then Was Denied for the Loan

Ivory, one of our readers, bought a car at a dealership and drove it home. Fifteen days later, she received a letter saying that the loan had been denied. Here’s her story:

Me and my mom were approved for an auto loan on 1/27 we signed all the paperwork even got the car payment bank notes in the mail. And then I come home today (2/11) to find a letter saying we were denied for the loan. Keep in mind this is after I have had the car for 2 weeks and already signed needed contracts. Can they take my car away? Or make us pay more?

We asked automotive finance expert Matt Briggs, co-founder and CEO of CreditJeeves.com, what could be going on — and whether Ivory might actually have to return her car to the dealer.

“I would definitely have them read the contract terms, as that will dictate their options,” Briggs said. “The contract will stipulate whether it can be rescinded or rewritten. I have seen clauses which put a time limit  — say 30 days from contract date — to rewrite or rescind. Bottom line: She needs to read the small print in the contract.”

His suspicion is that the contract allowed for at least 30 days to fully approve the loan. Even though all the paperwork was signed, he said, there is a great likelihood that the contract included language allowing the lender to rescind or rewrite the loan. He emphasized that the lender, not the dealer, would be behind an overturned loan decision.

If Ivory is disappointed, so is the dealer. The dealership, like Ivory, thought it had a sale. And if she has to return a new car, the dealer will have to absorb the depreciation. So the dealer badly wants this sale to go through, too.

Briggs went on to say that while a scenario like Ivory’s is rare, it illustrates the importance of reading the loan documents (yes, even in the midst of being excited about your new ride). He said one option Ivory may have for finding financing now is a credit union. It’s also possible that the dealer can help her find a different lender, though the terms could be different from the ones she initially agreed to.

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Her predicament also highlights the wisdom of a different car-shopping strategy: shopping with a loan pre-approval. With this tactic, you’ll have an idea of how much you plan to spend and how long you are willing to make payments. You’ll also want to be very careful about allowing a dealer to check your credit. Readers have told us some applications at dealerships have triggered multiple inquiries (sometimes dozens) and their credit scores have been hurt as a result. At the very least, be aware of your credit score (you can see two of your credit scores for free, with updates every 30 days, at Credit.com); the dealer shouldn’t know more about your perceived creditworthiness than you do.

And despite its length and your eagerness to get behind the wheel, read your contract — even if someone has already told you what is in it. Read the fine print, and ask questions about anything that’s unclear to you.

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This article originally appeared on Credit.com.

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2 Comments

  • Don’t panic yet! It could be that the dealer applied to a number of lenders before getting you approved, and you’re only hearing from one of the lenders who didn’t approve you. People with dodgy credit have been known to get ten or twelve of these letters after bringing home baby, but so long as somebody sends you a payment book or accepts online payments, you still have a ride. Only if you get the call from the dealer saying “sorry, your credit didn’t get approved and we’ll have to take the car back” are you REALLY not approved anywhere. If you do get that call, then check your state’s laws on conditional delivery agreements. Here in NC, the dealer has to (1) disclose in writing that this is a conditional sale and you might have to bring it back and (2) keep the vehicle on the dealer’s insurance until final credit approval. Then there’s the illegal yo-yo sale where the dealer turns you loose with say $343 a month payments and moves your insurance policy to the new car and lender, then calls a few weeks later with the “whoops, deal didn’t go through; here, sign this other agreement if you don’t want to get repo’d” and you do, followed by $614 a month payments, which you can’t pay, and the vehicle gets repo’d anyway. True story, I’m afraid, but the good news is that the NC Court of Appeals ruled this year that this IS fraudulent and unfair and you can recover damages if you can prove it.

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