Take a moment and imagine somebody holding a yo-yo in their hand. Now let's watch the imaginary yo-yo user fling the toy downwards, allowing it to spin steadily at the bottom of the outstretched string. With a quick flick of the wrist, the spinning yo-yo climbs back up the string and returns obediently to the user's hand. That's what a yo-yo is supposed to do: obey its user, and return to the user's hand upon command.
Some car dealerships took the concept of the yo-yo and applied it to their auto loan financing deals. The difference, however, is that they're not playing with a toy spindle, but instead they've attempted to turn their clients into their own personal yo-yo's.
Yo-yo financing refers to the practice of originating auto loans contingent on a credit check that will be performed at a later date.
Letting the Yo-Yo Sleep
When car salesmen practicing yo-yo financing come across interested buyers, they bait those buyers into purchasing vehicles by offering great prices. The salesmen requires the buyers to finance auto loans through the dealership, but those financing options have contingencies saying the price is only valid if the buyers have qualifying credit scores.
"Don't worry about that though," the salesmen will say. "We'll run your credit later, so go ahead and take the car home."
Thinking the credit check is a mere formality, the buyers agree and happily head home with their new rides.
When home, the buyers park their vehicles in their garages, and take every precaution to make sure their new purchase is well taken care of. As soon as they're able, they show their new cars off to friends and family, taking them for rides around town, and allowing their loved ones to experience the beauty that the new owner will enjoy for years to come.
Some buyers even list their old vehicles for sale, and try to liquidate that now useless asset for some extra cash.
This whole phase of enjoying one's newly purchased vehicle is exactly what the scamming car dealership wants. Their yo-yos are "sleeping" at the bottom of their strings-unaware that they can be retracted at any moment.
Some car dealerships took the concept of the yo-yo and applied it to their auto loan financing deals. The difference, however, is that they're not playing with a toy spindle, but instead they've attempted to turn their clients into their own personal yo-yo's.
Yo-yo financing refers to the practice of originating auto loans contingent on a credit check that will be performed at a later date.
Letting the Yo-Yo Sleep
When car salesmen practicing yo-yo financing come across interested buyers, they bait those buyers into purchasing vehicles by offering great prices. The salesmen requires the buyers to finance auto loans through the dealership, but those financing options have contingencies saying the price is only valid if the buyers have qualifying credit scores.
"Don't worry about that though," the salesmen will say. "We'll run your credit later, so go ahead and take the car home."
Thinking the credit check is a mere formality, the buyers agree and happily head home with their new rides.
When home, the buyers park their vehicles in their garages, and take every precaution to make sure their new purchase is well taken care of. As soon as they're able, they show their new cars off to friends and family, taking them for rides around town, and allowing their loved ones to experience the beauty that the new owner will enjoy for years to come.
Some buyers even list their old vehicles for sale, and try to liquidate that now useless asset for some extra cash.
This whole phase of enjoying one's newly purchased vehicle is exactly what the scamming car dealership wants. Their yo-yos are "sleeping" at the bottom of their strings-unaware that they can be retracted at any moment.
And With a Flick of the Wrist...
Then the phone call comes: "Excuse me, but we just ran your credit, and unfortunately you didn't qualify for the auto loan we originally agreed to. Can you please come back in so we can straighten this out? Oh, and bring the vehicle with you too."
The buyers head back to the dealership where they're informed their agreements no longer apply since they lack an appropriate credit score. In order to keep the vehicle, the buyers will need to finance their vehicles at higher prices.
After driving a new vehicle around, and learning to love all of the qualities it had that the buyers' previous vehicle didn't, the buyers are more apt to make ends meet in order to keep their new purchase. Additionally, buyers who show their vehicles off to friends and family will be more likely to agree to a dealership's demands so that they can avoid the embarrassment of explaining to others why they no longer have their new vehicles.
Furthermore, if buyers sold their old vehicle, they will have no choice but to work with this particular dealer.
Dealers intentionally allow buyers to take vehicles home because they know those actions will work to persuade buyers to shell out more cash-even if those buyers would have a difficult time managing such hefty auto loan payments.
As borrowers contemplate all of these factors, the con-artists smile, relishing in their successful snap of the wrist.
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