Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP® Joel Ohman

UPDATED: Nov 9, 2011

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When a buyer shops for a new car, some dealers may offer a type of financing called “spot delivery” or “spot financing.”

Spot financing is one of those too-good-to-be-true terms in which a car dealer offers you a deal and lets you drive away with a car under the assumption that if you receive a certain credit approval (which will be determined after you leave) you may keep the car and receive the agreed-upon financing.

But lenders slip through a loophole by having the buyer sign a disclaimer promising to return the vehicle if the buyer doesn’t meet the credit mark required for the deal he or she’s receiving.

While in theory this sounds like a convenience offered by the lender, it is usually little more than an attempt to exploit more money from the buyer.

Car dealers offer the best possible rate knowing full and well that most buyers won’t qualify for such financing. Then they allow buyers to leave the lot and grow attached to their new car. They let a week or two go by—enough time for buyers to show their new vehicle off to friends and family.

Then comes the call informing buyers they did not qualify.

After driving the new vehicle around under the assumption it was theirs at the rate agreed to—and maybe even after selling their old vehicle—they’re told they now owe more.

Not wanting to suffer the embarrassment of facing their friends and family without their new prize, many buyers bow to the dealer’s demands and take on financing they never would have agreed to under normal circumstances.

Spot financing is a practice that lends perfect credence to the advice: “Read everything!” It has the potential to misinform, exploit and land buyers in financial trouble.

It’s a particularly nefarious deal because, once signed, it’s illegal for a dealer to break contract simply due to his lack of knowledge of a buyer’s credit. That is precisely why traditional auto loans are approved after a credit check has been run.

Instead, obtain auto loan financing before entering the dealership, and shop for a car you know you can afford.