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®

UPDATED: Mar 28, 2012

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Auto loan yo-yo financing is a scam performed by some dealerships that is basically a glorified bait-and-switch routine. Yo-yo financing gives a consumer one price, only to call that consumer back into the office a few days later and inform them of an increase in price that they must agree to if they’d like to retain possession of their new vehicle.

Yo-yo financing occurs when a dealership structures a purchase contract that is contingent upon a credit check. The dealer is able to get the buyer to agree to a vehicle purchase at a price that’s almost too good to be true. The buyer takes out an auto loan and drives his new car off the lot.

Buyers often use the first few days with their vehicle as a showing-off period—which is exactly what the yo-yo financer wants. These scammers want the buyer to take friends and family for rides, and they want the buyer to grow attached to the vehicle.

Often times the buyer uses this time to sell his or her old vehicle off since they’ve been led to believe that this new vehicle is theirs for the keeping.

Then after several days or weeks, the buyer receives a call from the auto dealer. The dealer explains that there were problems with the credit check and asks the buyer to bring the new vehicle in to discuss the details further.

Once the dealer has the buyer sitting in his office, the dealer explains that the buyer must relinquish the vehicle back to the dealer unless the buyer agrees to pay more. Not wanting to be embarrassed after showing the vehicle off to friends, and not wanting to be without transportation, buyers often agree to take out a more expensive auto loan.

By sending a buyer home with a car then winding him back in to the dealership in a yo-yo-like fashion, predatory car dealers have employed this crafty way of sucking more money out of their unsuspecting clients.

In order to avoid yo-yo financing scams, buyers should obtain pre-approved auto loans directly from lenders instead of from dealerships. They should also read their purchase contract thoroughly and make sure any contingency involving credit checks is completely satisfied before driving the vehicle off the lot.