Spot Delivery Pitfalls

“Spot delivery” is a widespread and accepted practice in the automobile business.  However, some less scrupulous dealers may try to take advantage of the unwary consumer.

In spot delivery, the buyer takes possession of the vehicle “on the spot,” upon making a commitment to buy or lease on installment, but not yet having a definite arrangement for financing with a bank or finance company.

There are inherent advantages and disadvantages to this practice.  The advantages include 1) a probable sale for the dealership and 2) a gratified consumer who, in need of transportation, is able to get it immediately.  Being able to drive the car home is a convenience to the buyer, for example, when the sale takes place after hours or on a weekend when his credit cannot be immediately verified.

A well-intentioned dealer can usually confirm the terms within 72 hours if you are creditworthy.  He may or may not have conducted a preliminary credit check that indicates you’ll be approved for the requested financing, but you may be allowed to drive the new car off the lot if he is confident you’re a “good risk.”

The downside is that middle- to lower-income customers who don’t have excellent credit may end up not being approved for financing, and they may not have been informed orally of what the written contract states: that the agreement is not binding until financing is approved.  If the financing isn’t approved, either the vehicle must be returned, or less favorable terms must be negotiated.

So, don’t let this story be about you:

Vinnie Winkler purchases a beautiful new car from Murphy’s Motorcar Emporium, signs all the necessary paperwork and drives it off the lot, a big smile on his face.  His loan was approved “on the spot”—or so he thinks.

A few days later, Murphy calls and asks Vinnie to come back “to sign a few more papers.  Mr. Winkler,” he says, “We couldn’t get the car financed, so you need to sign a new loan with another bank (or you need someone to co-sign, or it’s going to take another $1,000 down for us to work this out, or we need to increase your monthly payment)….Unfortunately, we’ve already sold the car you traded in, and the deposit you paid is nonrefundable.”

Vinnie’s credit is not very good, and he doesn’t understand why this is happening.  After what seems like a long wait at the dealership, the sales manager says they will have to repossess the car if he doesn’t come up with more money or return the car by the close of business that day.  Vinnie tells Murphy, “But we had a deal.  We signed papers!”  He doesn’t feel he can walk away from the deal now.

Because he wasn’t aware of the pros and cons of “spot delivery,” Vinnie ends up with a bigger monthly payment that will cost him thousands of dollars more over the life of the loan than he had originally planned.


Now imagine a similar scenario with you as the key player:  You make a deal on the car of your dreams and drive off in it, believing that the dealer-arranged financing is approved or will be shortly.

You recall signing several different papers, one for the sale and a different one for the financing.  You were also asked to sign a document called a Bailment Agreement, stating that the financing contract is void if the dealer does not assign it to a lender within a certain number of days.  Important financing terms in the contract were left blank, to be filled in later.

You barely noticed the contingency provision you signed stating that, with no financing approval from a bank, the sale has not actually closed; and you, the buyer, must either pay the balance in full or return the vehicle—at the same time paying for any damage, as well as rent for the days used plus a considerable fee for the mileage you accumulate.

Well, after you're on your way down the road, the dealer tries to get the bank to approve the rate and terms you agreed on.  If for some reason the deal doesn’t go through with the bank whose paperwork you signed, the dealer will have to go to another bank or lending institution and try to find one that will buy the loan.

After a week or two, he may inform you he couldn’t get the financing that was in the original agreement. Now you’re driving a car that you haven’t paid for and have no assistance in paying for.  If this happens, it’s almost sure to cost you more money—either in the form of an increased down payment, higher monthly payments, a longer loan term, or all of the above.  He may have to ask you to return the car, go back to the negotiating table and sign new paperwork.

It’s inconvenient and disappointing for both the consumer and the dealership when the merchandise must be returned.  The disappointed buyer not only doesn’t have a new car, but may have sold a previous vehicle and be left without transportation.  The dealership may also face expense in recovering the vehicle.

How can you avoid a situation like this?

  • Be an educated consumer and learn the advantages versus the disadvantages of spot delivery.
  • Select a reputable auto dealer.  Check them out with the Better Business Bureau.
  • Be fully prepared before you go to the dealership, since it’s in your own interest to find the best loan rate and terms.  Ideally, arrange third-party financing ahead of time so you know the amount of money you can borrow.  At least contact your bank or credit union to find out what interest rate you would qualify for, so you can compare this with the dealer’s financing offer. 
  • If you do finance through the dealer, seriously consider waiting until financing has been approved before you take possession of the vehicle.
  • Before signing anything, give yourself a cooling-off period.  Take your time, think it through, and don't let the salesperson rush you into anything.
  • Carefully read all provisions of the contract.  If there are blanks left, ask the dealer to complete them before you sign.  Ask questions if there are items you don’t understand.
  • Keep records of all monies you pay in the transaction, and don’t pay with cash.
  • Insist in advance on a written assurance that, if your financing should fall through, your deposit and your trade-in will be returned to you; or, if credit terms change, you may cancel the deal.