Approved for Financing at the Dealer Then Denied a Few Days Later; What Happens Now


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It is a horrifying situation. You buy a car, motorcycle, or RV by financing it at the dealership. You sign the paperwork and drive it home with the dealer's blessings only to discover a few days later that the financing has suddenly and unexpectedly been denied. Now the dealer wants its vehicle back and you are left holding the bag, maybe even out a down payment or other fees as well as the cost of any aftermarket additions to your vehicle. What do you do?

Unfortunately, this situation could be caused by several factors. For example, you may have been simply pre-approved at the dealership and subsequently denied actual financing once the banks got a closer look at your financial situation. The dealer may have tried to pull a fast one by changing the financing after you had a deal, probably for a more favorable dealer incentive program offered by another finance company, but got caught when one of the companies declined you and, quite possibly, the other denied you now as well for too many credit inquiries. It could just be a simple mistake made by one or more parties. Whatever the case, it is going to create certain problems for you with a variety of resolutions, some favorable to the buyer, some not.

Obviously, the easiest thing to do is simply return the car to the dealer as you have probably been requested to do. You will potentially lose any investments you have made in the car, but may be able to get back any fees you paid to the dealer. Unfortunately, you may have a harder time getting back state fees, like tax, tag, and title, since those will represent actual losses to the dealership.

Another option is to attempt to obtain financing on your own. Obviously you will need to do this very quickly as the dealership will likely be hounding you to return the vehicle. Private lenders are an option as well as institutional lenders. A number of private lending websites have sprung up over recent years and you may have a better chance getting financing from one of them if big banks are not willing to deal with you.

Another option may be to pursue the dealer. If they have made a mistake in the handling of your financing they may be liable for this situation. If you have signed a contract and the dealer or the bank with which the dealer brokered your loan you may have a claim for breach of contract. It is not at all rare for banks to make mistakes; they are large institutions with many moving parts, each of which can make a misstep. If they approved your financing and you signed an agreement with them and they suddenly discovered their mistake and attempt to strong-arm you into backing out of the deal, you may be able to enforce the contract. If the dealer had a part in the “mistake” and now you have to pay additional fees or finance charges, you may have claims for negligent misrepresentation or fraud. At the very least you may have the right to demand a refund for any expenses you incurred as a result of the granting and subsequent denial of financing, such as cost of aftermarket parts and installation or other fees associated with the transaction.

What you should not do is nothing. Ignoring the problem will likely result in the vehicle being repossessed and the cost of the towing and recovery fees being assessed to you. Similarly, do not use violence or empty threats in order to cow a dealer into compliance. This will accomplish nothing (other than making you feel momentarily better, perhaps), but could lead to very serious consequences like visits from the police or lawsuits.

If you have been the victim of this situation, you may wish to contact an attorney. The particular facts of your case may have an impact on your options and possible strategy for dealing with this situation, and an attorney will best be able to assist you with both an appropriate response and in understanding the legalities of the situation.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.

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