The Expert Podcast

So let's say you purchase a vehicle from a car dealer, maybe an online dealer or maybe one with a car lot, and you finance it, but you don't finance it through the dealership. Maybe you finance it through your credit union, maybe you finance it through another bank. What happens if the dealer doesn't come through with the title? What happens if the dealer maybe doesn't have a title? Maybe they bought it from an auction and they never got the title? There's a lot of reasons why a dealer might not have a title. They're not supposed to sell the car until they have the title in their possession, but a lot of times dealers will sell it because they want to make a profit right away. So they don't come up with the title, and you're stuck.

Does your financing still remain valid? Well, here's what happens: when you got that financing from your bank or your credit union, that bank or credit union gave the dealer the car price in cash. If you bought a $25,000 car and you financed it with that credit union, maybe your payments are $450 a month. Let's say the bank doesn't pay the dealer. Over time, the bank writes them a check like you're paying cash for the car. The dealership always gets paid cash for the car. So now your bank is out $25,000. You owe them $450 a month. They don't care what the money's for; it was for a car loan. But as far as they're concerned, they put out money, and they're expecting to get their payments back. If you never get a title, the bank is not going to take the loss. In fact, if the bank doesn't get the title right away, because normally with a car loan, the bank holds the title, they might convert your auto loan into a personal loan.

If you read the fine print of your loan contract, it says if they don't get the title within a certain amount of time—60 days, 90 days, whatever it is—they have the right to convert your auto loan into a personal loan. How does that affect you? Well, they could raise the rate because an auto loan is a more secure loan, less risky, because they have collateral; they could repossess your car. So your auto loan rate might be, let's say, 7%. If they don't get a title, they can say, "Look, this is now a personal loan; we're jacking up your rate to 12%." So now your payment, instead of $450, is $510 or whatever.

The dealer not giving a title could have liability for you and the bank, and nobody's going to take the liability on your behalf, right? So you want to make sure that dealer has a title. What should you do to protect yourself? Well, if you're buying a vehicle from a dealer and financing it, you should have the dealer at least show you the title. The old title won't have their name on it; it'll have somebody else's name on it because they bought it from an auction or bought it from another dealer. That's fine, but just make sure they show you the actual original title—not a photocopy, not a digital copy, not something online that they can show you. They should show you the original certificate. They don't have to give it to you because you're not going to be able to take it with you right away, but at least show you they have it in-house, in their possession.

Because if they don't, that puts you at risk of paying money for something that you can't do anything with. We have lots of examples. People call us all the time where they bought a car six months, eight months, a year ago, and they don't have a title yet, and they can't even drive their car because the registration is not valid. Their temporary paper plates have expired, and they're getting pulled over all the time. So they have to park their car, and they either paid cash out of pocket or they're paying high payments for it. So make sure you verify that your dealer is in possession of a title before you either sign on the dotted line or hand over your hard-earned cash.