The Expert Podcast

So, there's a tactic that some car dealers use that has been going on for a long time. We've seen this back 30 years ago, 40 years ago, and it's come up in the news quite a bit recently. It's a way that dealers can do something kind of underhanded, almost invisible, that might put your purchase at risk and in jeopardy. It's called a bailment agreement, and some people call it yo-yo or be-back or comeback. But basically, what happens is when you purchase a car and drive off the lot, there may be an option where the dealer can call you back and leverage you, coerce you, or blackmail you into giving them more money after you've already bought the car. They can make you come back with more cash, make your payments higher, or even give you a different car.

How can they do that if you already drove off? Well, it's a very common practice, and it's invisible—you almost don't even know it's happening. The reason we're bringing this up now is because, you know, Jalopnik had a really good article about this today. Even Steve Lato, the high-profile YouTuber who's an attorney, talks about it again. He says his first video on his channel was about this tactic many years ago. It's coming up again because for a while, it was kind of out of favor, but now it's being used more.

So, how does it work? Well, when you go into buy a car at a dealership, you have to sign a bunch of documents. You have to sign a buyer's order, a bill of sale, an odometer statement, a car loan (if you have that), and you sign this big stack of papers, and you drive off the lot. The way dealers do financing is by doing what's called a "spot delivery" or "on the spot delivery." Meaning, when you come in and want to buy a car, they want to get you out the door in that car right then. They don't want you to go home and think about it or come back later, because you might change your mind. So, they want to do a spot delivery to get you over the curb with that car right then.

How do they do the financing? Well, they're going to take your application and submit it to their lender, or maybe more than one lender, and try to find the lender that has the most advantageous financing for you. They also get a commission on that financing, and they may want to find the dealer that has the best kickback. But not everyone gets approved for financing, so they want to make sure that if they give you that car and let you drive home, and for some reason, the financing doesn't get approved, you have to bring the car back. And that's legitimate.

Mixing that paperwork is what's called a bailment agreement. A bailment agreement basically says if my financing does not get approved, I will bring the car back immediately upon request, and they'll give you your money back, and you'll trade back. They’ll undo what they did, and that's a legitimate, fair thing. Now, we'll talk later about whether or not you should even do that bailment agreement, but that's what the dealership does and how to avoid this from happening.

So, what happens is that the dealer sends your application out to some lenders. They pretty much have a good idea of how you're going to get approved. They see your credit score, your income, your pay stubs, whatever the case might be, and they know, "Okay, this person qualifies for this type of financing." But what if they guess wrong? What if the lender doesn't approve it the way they want? Maybe you got approved, but for a higher rate. Maybe you got approved, but for not as much money. They might have been trying to finance a higher amount of money than the bank’s willing to approve for you or for that car.

Now, they get the call back a couple of days later from the bank, and your approval didn’t come in the way they thought it did. They say, "Wait a minute. You have to come back in and put more money down. You have to come back in and sign up for a higher payment because your rate is higher." That’s not fair. Well, here’s your bailment agreement—you signed it, or you didn’t get approved at all, and you have to bring the car back or maybe switch to a lower-priced car.

This is something that dealers will put in every deal if you're getting a spot delivery. So, how can you avoid this? Here’s what you do: First of all, do not sign a bailment agreement if you’re buying a car at a dealership and financing. Wait until they have their financing done to pick up the car. If you're in the dealership and they make an agreement on numbers and you're financing through the dealership, unless they have the financing already approved and done the way that you have it structured, just tell them, "Hey, call me when you get it done." It's not going to take them more than a day or maybe two. If you want to leave them a deposit to hold the car, that’s fine—that’s not much at risk.

Here’s what it’ll do: Even if you’re not worried about getting declined for financing or rejected, it’s still a good idea. Here’s why. Let’s say, for example, you do your deal, and they put you in as an A-tier financing, or a very low rate, or low monthly payments, and it doesn’t come in that way. Now, they have to readjust it, and they have the option to do it. They have the leverage to do it. If they do something with a low price and then decide later, "Wait a minute, we made a mistake," they can bring you back in to fix that mistake.

We’ve seen this happen. We had an example where a customer went into a dealership to buy a car. It was late at night, finalizing the deal, they negotiated and got a really good deal on this car. It was a lease deal, and the dealership figured the price of the car with incentives from the factory like rebates. This was back in 2017 or 2018, when there were incentives and rebates on the car. They also did a lease deal, which had incentives on the lease. They had a lower rate for the lease, and they figured up the payment. It was a really good deal. They delivered the car.

But the customer said, "No, I don’t want to do this bailment agreement. Just call me when the deal is ready." So they didn’t take the car that day or night. They said, "If you have to wait for the financing to be approved, I don’t want to take a car I’m not approved for yet. It’s not a done deal, so let’s wait till tomorrow."

The dealership called back and said, "Well, it might be a little different." The customer said, "Forget it. If that’s the deal I thought I was getting, and if you can’t do the deal, that’s fine," and they were going to go look somewhere else. Finally, the dealership said, "Okay, fine, we’ll do it." And they came back in, and it wasn’t that the customer wasn’t getting approved, because they had very good credit. It was that they had miscalculated the numbers. The lease deal incentive and the rebate incentive—you couldn’t do them both. You could either do the incentive or do the lease deal.

The dealership made a mistake and used both incentives when they figured out the numbers. If they had done a spot delivery, they could have called them back and said, "Hey, you have to come back and pay a higher payment," especially since it’s been two or three days. You’re driving the car; you’re enjoying it. You’re not going to undo that deal. But since they didn’t take the car yet, you actually have more leverage now because you don’t have to go back to the dealership. You’re more likely to go back and redo that paperwork if you already have the car in your driveway, your garage, or wherever.

If you didn’t do the deal in the first place, you have leverage. So what the dealership had to do was actually sell the car for a lower price than they could’ve—probably below cost—to make those numbers still happen. They didn’t want to lose the customer and also have a bad review for that transaction.

Make a long story short: If you’re buying a car and the dealership has mixed in that paperwork, a bailment agreement or some agreement where you have to bring the car back, call foul on that deal. Tell them that you’re not going to do it. When you have the financing done and you know you can do this deal, call me, and let me know, and I’ll do it then. I’m not going to do speculation with you as a dealership that you think you can do this, but maybe you can’t because I’m committed to it. You don’t have the option of bringing the car back.

Right? The dealership is doing an unfair advantage to you where they have the option of undoing the deal, but you don’t. You want to level the playing field. If they can’t commit to the deal and know that it’s going to be completed and etched in stone, then you shouldn’t have to be locked into it either. So unless they’re willing to say, "Well, you have the option of bringing it back too," then why would you do that? Because it’s not a level playing field.

This has come up a couple of times. We saw these two on Jalopnik and Steve Lato. It was also in a Car and Driver article just a couple of months ago. So be aware of it.