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When Third Party Financing Falls Through

For dealers who help customers secure financing through a third party, there is always a risk that no bank, credit union, or finance company will be willing to “buy” the deal. Despite this risk, many dealers sign a deal with the customer, allow the customer to leave with the vehicle, and hope that the deal goes through. What can the dealer do if no one buys the deal, or if the third party kicks the deal back for some reason? 
In the words of my esteemed predecessor, “If you as a dealer enter a retail installment contract and are unable to assign it, for whatever reason, you are now in the financing business (at least on that deal).” With that said, you do have some options.

The first option is to try to unwind the deal. If the customer will agree to return the vehicle in exchange for getting their down payment back, then unwinding the deal will save you a great deal of stress.
 
Another option is to involuntarily repossess the vehicle. Exercise caution with this, because the only grounds a dealer is likely to have for repossession would be an intentional misrepresentation by the customer. Examples include (but certainly are not limited to) falsifying pay stubs as proof of income or providing fraudulent identification. Absent such a misrepresentation, you would be responsible for honoring the contract.
 
Finally, a dealer could exercise an ounce of prevention by using a conditional delivery agreement (CDA). A CDA is a contract between a retail seller and prospective retail buyer under the terms of which the retail seller allows the prospective retail buyer the use and benefit of a motor vehicle for a specified term.
 
The benefit of a CDA is that your customer may take delivery of her new vehicle immediately. If the financing falls through, you are not left on the hook to finance the vehicle yourself. The downside of a CDA is that you do not have a sale. No two ways about it- if the customer decides she doesn't want the vehicle for any reason during the CDA period before a contract is signed, she can return the vehicle to you and you must return her down payment.
 
Ultimately, the only way to avoid becoming an unwilling buy-here-pay-here dealer is to refuse to enter into a contract with a customer until financing is secured. In lieu of that, take heed of the options above. Feel free to share your ideas and comments in the Comments section below.

The Fine Print on CDAs
  • The agreement may not exceed 15 days and is void upon the execution of a retail installment contract between buyer and seller.
  • The value of the buyer's trade-in must be agreed to and stated in the agreement.
  • Finally, the seller must use reasonable care to preserve the buyer's trade-in and must return it in substantially the same condition as when the agreement was signed. If the trade-in can't be returned, seller must pay buyer the value of the trade-in as stated in the agreement.

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