There is a big difference between who you pay the down payment to and who you make car loan payments to. Your down payment is paid to the DEALER. Your car payments are paid to the LENDER. Your obligation to both is wholly separate.
For example, let's say you agreed to pay a $3,000 down payment but only had $2,000 at the time of sale and agreed to pay the balance of $1,000 in $200 payments for five months. This is your agreement with the DEALER and the dealer has the right to get paid - on time.
At the same time that you are making payments to the dealer, you need to make your car payments to the LENDER. If your car payments are $300 per month, then for the first five months of car ownership you will be paying a total of $500 per month for the car - $200 to the dealer and $300 to the lender.
What happens if you miss a payment?
Once the car loan is in place, the LENDER has a secured interest in your vehicle. You will be listed on your DMV registration card as the Registered owner and your lender will be listed as the legal owner or lienholder. What this means is that only the lender has the legal right to repossess your car for failure to pay your car payments and sue you for the balance on the loan.
Once the lender is listed with the DMV as the legal owner, the dealer no longer has any secured interest in the vehicle and therefore has no legal right to repossess it if you fail to pay the dealer for the balance of the down payment. However, the dealer does have the legal right to sue you for the money you owe.
This doesn't mean that the dealer won't try to repossess your car illegally, which puts you in a terrible position with the lender because you are still obligated under the loan agreement to make your car payments on the loan for a car you no longer have possession of.
Seriously consider if you are financially able to make two payments at the same time.
Lenders decide whether or not to finance a vehicle loan based on what is written on the sales contract. If the sales contract shows that you have made a $3,000 down payment, but you actually only paid $2,000 and are going to make five more payments of $200 each to pay the dealer, the dealer is misrepresenting to the lender what the actual terms of sale are. If the lender knew that you were obligated to pay $200 per month to the dealer at the same time that you are making a $300 per month car payment to the lender, the lender may have refused to fund your car loan. If your income shows that you can easily make a $300 per month car payment, but not a $500 per month car payment, the lender would be taking too great a risk that you will default on your car loan. Rightly so.
Your best choice is to buy a car with only the amount of down payment that you actually are able to pay in cash at the time of sale - no deferred down payments.
This is the worst, absolutely THE worst advice I could give you. You hear this all the time, and it seems like GOOD advice. So, why do I say it is the WORST advice? Because it pains me to look into my crystal ball and know that you will NOT take it. It’s also the worst advice because if I give you this advice after you buy a piece of junk, then I sound like an “I told you so” nag. Of course, I'm going to give it to you anyway, but you're putting me in a real bind by not taking it. How do I know you won't take my (and every other lemon law attorney's) advice? Because you’ll be in my office (or theirs) asking for help to get you out of the sale. Maybe we can help, and maybe we can’t.
That's it - that's my very best and worst advice. It bears repeating:
Get your used car inspected before you buy it!
Now, rather than leaving my blog on such a negative Nelly note, I thought it might be helpful to talk about the psychology of why people feel so uncomfortable asking the seller if they can take the car to their own mechanic for inspection. (This is arm-chair psychology since I’m not an actual psychologist but attorney's are also known as “counselor” so I'll take my leave.)
First, people do not like conflict and setting a boundary with the seller is uncomfortable. You’ll likely get a lot of push back: “I already inspected the car and it runs fine.” “Don’t you trust me?” “Just sign the papers first and you can take it to a mechanic. If there is a problem, I’ll take it back.” “You can’t take the car because it isn’t insured.” “I’ve shown you the Carfax already and it says there aren’t any problems.” And on and on.
What a normal car buyer might think is, “Lordy, just get me out of here.” “I’ll just sign so he shuts up.” “Well, he sounds honest.” “He said he would take it back.” “I’ve already taken his time, so I have to buy it now.” All of this push-back is really just to bully you, distract you, and make you uncomfortable. Sellers WANT you uncomfortable.
There is one ADULT requirement that you should know about. If you buy from a private seller, YOU are required to report the sale to DMV within 10 days of the purchase date. The seller signs over the title (pink slip) to you and you notify DMV of the sale. If you buy from a used car dealer, the dealer is supposed to report the sale to the DMV.
Being better informed, empowered, and a bit more self-reflective, we can close this counseling session and I will hang up my psychologists hat ...
You bought a brand new car with that new car smell and can't wait to drive around town and show it off a bit (or a lot!)
Somewhere along that drive a friend says, "Hey, did you notice THIS?"
"WHAT?!" you say.
And there IT is - a funny patch of paint, a dull spot, a dimple. And your brand new car bubble deflates. How can this be? This is supposed to be a brand new car!
A new car may be damaged during transport or on the dealer’s lot prior to sale. If the damage is minor, a dealer is not required to inform you. But a car dealer is required to disclose pre-existing damage prior to selling the car in the following circumstances.
(1) Damage to the frame or drive train.
(2) Damage to the suspension requiring repairs other than wheel balancing or alignment.
(3) Damage that occurs in connection with a theft of the vehicle.
(4) Damage requiring repairs, including parts and labor, that exceeds the greater of 3% of the manufacturer’s suggested retail price or $500.
For example, $1,500 is 3% of a vehicle with an MSRP of $50,000. Thus, if the repair cost exceeds $1,500 the dealer is required to disclose the damage to you prior to signing the purchase contract.
Well, don't you think the dealer is going to fix it himself and under charge for that repair to keep it under the 3%? Hmmmm......
Sorry folks. The calculation is based on the dealer's reported cost to repair. If it is obviously a much greater repair, then you may need to have the car inspected to determine what is a realistic repair cost and take the dealer to task. If the dealer refuses to buy it back, you might want to contact an auto sales fraud attorney. (Hmmm.... now where would you find one of those?)