Can A Dealership Take Back A Financed Car

Can A Dealership Take Back A Financed Car

Buying a new car is an exciting experience. After doing your research, test driving different models, and negotiating with the dealership, you finally drive off the lot with your shiny new vehicle. However, for many people,

the car buying process also involves financing through the dealership to pay for the car over time. This introduces a third party – the lender – into the transaction. So what happens if you run into issues with the car soon after purchase and want to return it to the dealership?

Can a dealership take back a financed car if you are unsatisfied? This is a common question for buyers who finance their vehicles. The answer depends on several factors.

The Purchase Contract

First, it is important to review the purchase contract you signed when buying the financed car. This is the legal agreement between you and the dealership. It likely addresses what happens if you want to return the vehicle soon after sale.

Most dealer contracts include a short term where you can bring the car back for a full refund, exchange, or repair. This is sometimes called a “cooling off” period and may last 3-10 days. However, this cooling off period usually only applies to “buyer’s remorse” and not defects or problems with the vehicle.

The contract should specify the dealership’s return and exchange policies, so read it thoroughly before signing. If you want to return the financed car within the stated timeframe simply because you changed your mind, the dealer must take it back per the purchase agreement.

Lemon Laws

If the desire to return the financed vehicle stems from defects or performance issues, lemon laws come into play. Lemon laws provide consumer protection by requiring the manufacturer to repurchase seriously defective vehicles.

Lemon laws vary by state but generally cover new cars within the first 12 months or 12,000 miles. To qualify as a lemon, the vehicle typically needs to have a substantial defect that was unable to be repaired after multiple repair attempts.

Examples include engine, transmission, computer, or electrical problems. You must notify the manufacturer of the issue in writing and allow sufficient repair attempts. If your financed car qualifies as a lemon, the manufacturer is required to buy it back under your state’s lemon law.

Lemon Laws
Lemon Laws

The Financed car Complication

Financing a car through the dealership adds a layer of complexity if you want to return the vehicle. The dealership doesn’t technically own the car anymore – the lender does. You make payments to the lender until the loan is paid off. Any return would need to satisfy that loan before the dealership can take the car back.

For vehicles returned under lemon laws, the manufacturer pays off the outstanding loan balance as part of the repurchase. This clears the way for the dealer to retake possession of the defective vehicle. For voluntary returns that don’t involve lemon laws, the process differs. You have a few options:

  • Trade it in: The most straightforward option is trading the financed car in towards another vehicle. Any positive equity above the remaining loan balance becomes a credit towards your next auto purchase. This essentially accomplishes a return and satisfies the loan.
  • Voluntary dealer repurchase: Some dealers may voluntarily agree to buy back the financed car if you are dissatisfied. They can pay off the loan balance and take the car back into their inventory to resell. However, dealers are under no obligation to do this unless stipulated by the purchase contract.
  • Refinancing: You may be able to refinance the auto loan in your name only, separating it from the dealership. This would allow you to return the car and continue paying the loan yourself. But refinancing usually requires positive equity and good credit.
  • Paying it off: Alternatively, you can pay off the financing in lump sum before returning the car. But this requires you have the cash available, which is unlikely soon after purchase.
  • Defaulting: Defaulting on the loan would allow the lender to repossess the vehicle. But this destroys your credit and should only be a last resort option. The lender may still pursue you in court for any loan balance remaining after selling the repossessed car.
The Financing Complication
The Financing Complication

Discuss Options with Lender and Dealer

Before returning a financed car, have candid discussions with both the lender and dealership to review available options. Be aware that voluntary dealer buybacks of financed vehicles are rare.

You may need to explore trading it in towards another car or refinancing the loan yourself. If the vehicle meets state lemon law criteria, emphasize that legal recourse to the manufacturer. It is best to consult the experts – the dealer and lender –

who can explain the implications of returning a financed vehicle. Having your owner’s rights and options clearly defined in the purchase contract is also recommended before financing a car through the dealership. Knowing the guidelines for returns will help avoid any bad surprises down the road.

In summary, returning a financed car to the dealership is tricky but not impossible. Factors that determine if a dealer must take back a financed car include:

  • The return period defined in the purchase contract – Dealers must accept returns during the initial “cooling off” period, usually 3-10 days.
  • Lemon laws – If the vehicle qualifies as a lemon, the manufacturer is required to repurchase under lemon law statutes.
  • Trade-in towards another vehicle – Trading the car in is the easiest way to satisfy the financing and accomplish the return.
  • Voluntary dealer repurchase – The dealer may agree to buy back the car but is not required to.
  • Refinancing or paying off the loan – This separates the financing from the dealer to facilitate the return.
  • Defaulting on the loan – This allows the lender to repossess the car but damages your credit.
  • Discussions with dealer and lender – Critical to understand all available options before attempting to return a financed vehicle.

Review Loan Documents

In addition to the purchase contract, review any loan documents you signed when financing the car through the dealership. These would have been provided by the lender and outline the terms and conditions of the auto loan. Understanding the fine print in these financing documents ensures you know your rights when it comes to returning the financed vehicle.

Key details to review include:

  • Early payoff penalties – Some loans penalize paying off the balance early. This could apply if refinancing or paying the loan off to return the car.
  • Refinancing rules – Loan terms may stipulate any requirements for refinancing with another lender. This impacts one option for returning the car.
  • Default clauses – Know provisions around late payments, repossession, and consequences of defaulting on the loan.
Review Loan Documents
Review Loan Documents

Have Realistic Expectations

Understand that while you can return a financed car, it is not as easy as an outright cash purchase. There are more legal and financial hurdles involved with a financing agreement in place. Set proper expectations that returning a financed vehicle will likely be more complex.

Be Proactive

Don’t wait until you are fed up with the car to think about return options. As soon as any major issue arises, reach out to the manufacturer if it is a lemon issue and thoroughly document problems. You want a paper trail in case you do pursue lemon law repurchase down the road.

Consider GAP Insurance

GAP insurance helps cover any shortfall between the vehicle’s value and remaining loan balance. This provides protection if the car is totaled or stolen. GAP insurance is worth considering when financing, in case you need to default down the road.

Read Online Reviews

Research dealership reviews on returning financed vehicles. This provides insight into others’ experiences and whether the dealer was reasonable to work with. Though your mileage may vary, it helps set proper expectations.

Be Upfront with Lender

Keep the lender informed about any issues with the vehicle and your intentions to return it. This good faith can help smoothen the process and avoid any surprises for the financing company.

I hope these additional tips help provide a well-rounded overview of best practices when returning a financed car to a dealership. Let me know if you need any clarification or have additional questions!

State-Specific Repossession Regulations

  • Notice of Default: The number of days’ notice required before repossession varies. For example, Wisconsin requires 12 days, while Arizona requires 14 days.
  • Right to Cure: Some states specify the exact number of days the borrower has to become current on payments before repossession. In California it’s 15 days.
  • Right to Redeem: The period of time a borrower has to redeem their vehicle after repossession ranges from 10 days in West Virginia to 21 days in Kansas.
  • Right to Reinstate: Not all states allow reinstating a loan after repossession. This right exists in about 30 states, with time periods ranging from 30 to 60 days.
  • Deficiency Judgments: Some states prohibit lenders from suing borrowers for deficiency balances left after auctioning repossessed vehicles. For example, there are anti-deficiency laws in California and Montana.
  • Exempt Property: Texas allows borrowers to claim one repossessed vehicle as exempt personal property if it has equity under a certain amount. Some other assets are also exempt.
  • Notice Forms: Many states have specific notice forms that must be sent to the borrower at different stages of delinquency and repossession. These set timelines and explain consumer rights.
  • Fees and Interest: There are caps on the types and amounts of fees lenders can charge related to late payments and repossession costs. This also applies to post-default interest rates.

FAQs

Q: Can a dealership repossess a car if I miss a payment?

A: Yes, if you miss a payment the dealership can legally repossess the financed vehicle after providing required notices. The financing contract gives them this recourse for non-payment.

Q: What if I’m only a few days late on making my payment?

A: Most contracts provide a grace period of 10-15 days after the due date before the lender can begin the repossession process for non-payment. But it’s best to make payments on time to avoid repossession.

Q: Are there other reasons besides missing payments that a dealer can repossess a financed car?

A: Yes, defaulting on the loan terms by not maintaining required insurance, moving out of state with the vehicle without approval, exceeding mileage limits, or using the car commercially against the contract can prompt repossession as well.

Q: Can I get my car back after it has been repossessed?

A: You may be able to get the vehicle back by paying the full outstanding loan balance, plus any repossession fees, within a short period of time. This is called reinstatement, but rules vary by state.

Q: What happens to leftover loan debt after a repossessed car is sold at auction?

A: If the vehicle sells for less than what you owe, you as the borrower are still responsible for paying the deficiency balance to the lender. They can take legal action to collect on this debt.

Q: Does my credit score get impacted by repossession?

A: Yes, having your car repossessed will severely hurt your credit score. The missed payments and default status are reported to credit bureaus. This can make obtaining future credit very difficult.

Q: Should I consider voluntary surrender of the car instead of repossession?

A: Voluntary surrender can avoid some legal fees and look better than forced repossession. But either way, your credit will still take a major hit. Try to avoid both scenarios if possible.

Q: Is refinancing my car loan a way to avoid repossession?

A: If you’re struggling with payments, refinancing the loan at a lower interest rate or longer term may help avoid repossession. But make sure to not take on more debt than you can truly handle.

Conclusion

In conclusion, having your financed vehicle repossessed by a car dealership can be a stressful and financially devastating experience. But there are some steps buyers can take to lower the risk.

First, be very careful when negotiating your financing agreement and understand the terms around default and lenders’ recourse. Do not accept payments you honestly cannot afford long-term. Read all financing documents thoroughly before signing.

Make payments on time each month and maintain insurance requirements to avoid defaults. Communicate proactively with the lender if money ever gets tight. Explore options like loan modifications or refinancing before you fall behind on payments.

If faced with repossession, know your rights under state laws and consumer protections. Consult an attorney and don’t hesitate to push back if you believe the dealership is not following proper procedures.

While handing over a financed car is painful, focus on rebuilding your credit and getting back on solid financial footing. The most important thing is learning from the experience to avoid repeating mistakes in the future. With prudence and diligence, you can recover and move forward wiser.

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