Car dealer has not paid off loan on trade-in

December 18, 2014 18:06 by Consumer Ed

Dear Consumer Ed: 

We traded in my wife's car 3 months ago and the dealer still hasn't paid off the loan. We've called them countless times and we are getting nothing but the run-around. Now the car has gone up for repossession. What do we need to do?

Consumer Ed says: 

Trusting car dealers to pay off your loan can be risky:  if the dealership fails to pay off your loan, you’re the one responsible to the lien holder.  You’re responsible for all loans that you signed a contract for – even on vehicles that you’ve traded in and no longer have in your possession.  The dealer’s failure to make payments on your previous vehicle could have a negative impact on your credit score, and lead to a lawsuit against you from the company that financed the car that was traded-in.

Since your vehicle is in the process of being repossessed, the best thing to do first is to consult a private attorney immediately; he/she can assess the particular facts of your potential claim and provide you with individualized legal advice.  That attorney can also contact the dealership and lenders on your behalf. Additionally, there are several other actions you can take to mitigate the situation:

  • Look at the documents related to your transaction with the dealership, such as the auto sales contract. See if your trade-in was included as part of your new-car purchase and if the dealership promised to pay off the loan on your trade-in.  If you have the dealership’s promise in writing, it is easier to make a convincing case to the finance companies.
  • Then you should contact the company that is financing your trade-in and explain that the car should have been paid off by the dealership and that the car is physically in the dealership’s possession.  If your contract with the dealership states that the dealership promises to pay off the loan on your trade-in vehicle, provide a copy of that contract to the finance company.  You should also provide the dealership’s street address and phone number, because the finance company is allowed to repossess the vehicle when the loan is in default.  Ask them to work with you so that your credit is not negatively impacted by the dealership’s default or late payments.
  • You should also contact the company that is financing the new car that you bought from the dealership.  Provide copies of the sales contract with the dealership, and explain to the new lender that you had traded in your car, but the dealership failed to pay off the loan as it promised.  Talk to the new finance company about taking the new car back and cancelling the that contract, or lowering the new loan to make up for what you still owe on the trade-in.


Pay special attention if the outstanding balance on the loan for the car you traded in is more than the trade-in value.  For example, if the outstanding balance on the loan for your trade-in is $18,000, but your car is worth only $15,000, the dealership may include the $3,000 in the new car loan.  This is called “negative equity.”  If you’re buying a $30,000 car from the dealership, then you’d be signing for a $33,000 loan.  As a result, you could end up paying a substantial amount more for your new vehicle if the dealership defaults on your old loan.

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Car loan denied; can dealer charge restocking and mileage fees?

September 24, 2014 23:30 by Consumer Ed

Dear Consumer Ed:

Is it legal for a car lot to charge a re-stocking fee and 50 cents per mile on a car because the loan was not approved?           

Consumer Ed says: 

It sounds like you entered into a conditional sales agreement known as a “spot delivery” transaction.  With spot delivery, the buyer takes possession of the vehicle “on the spot,” upon making a commitment to finance the vehicle, but not yet having a definite arrangement for financing with a bank or finance company.  It would appear that you negotiated loan terms with the dealership and agreed to buy the car only if a lender agreed to finance the deal according to those terms.   The car remains the property of the dealership until a lender finances the deal.  Since the dealership was not able to find a lender to finance your deal, the dealership may be entitled to order you to return the car and to pay for its temporary use.

The amount that you may be charged for using the car depends on the agreement you signed prior to taking the car off of the lot.  Dealers who offer spot delivery usually require potential buyers to sign a “bailment agreement” outlining what would happen if the dealer was unable to secure financing with a bank or finance company.  If you signed a bailment agreement, and if it includes a reasonable restocking fee and per-mile fee, then these fees are likely legal.

However, even if the fees are legal, the dealer could still be in violation of the Governor’s Office of Consumer Protection’s Auto Advertising and Sales Practices Enforcement Policies.  For example, if the dealer represented that you had been approved by a prospective lender prior to your purchasing the vehicle, it would be unfair and deceptive for the dealer to require you to return the vehicle for an alleged failure to obtain lender approval. In that event, the dealership should also return any down payment you made on the vehicle if you are denied credit approval and choose not to pursue any other financing options.

You have additional rights if you traded in a vehicle as part of your transaction.  First, the dealer should have retained both title and possession of any such vehicle until financing is actually approved.  Second, if you choose not to execute another finance agreement for the purchase of your vehicle, the lot must immediately return your old vehicle to you.  If you believe the car lot engaged in any of these prohibited practices, you may file a complaint with the Governor’s Office of Consumer Protection by visiting www.ocp.ga.gov/consumer-services/filing-a-complaint, or calling 404-651-8600.

To avoid this situation in the future:

  • Prepare in advance.  Shop for financing as you shop for a vehicle.  Ideally, arrange for financing ahead of time through your bank or credit union so you know the amount of money you can borrow.  At least contact them to find out what interest rate you would qualify for, so you can compare this with the dealer’s financing offer.
  • Read through all documents thoroughly before you sign. If there are any blanks left in the contract, you and the dealer should complete them before you sign.  Ask questions if there are items you don’t understand.
  • Get everything in writing. 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.
  • Wait until financing has been approved.  If you do work with the dealer to secure financing, seriously consider waiting until financing has been approved before you take possession of the vehicle.

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As a Tennessee resident, do I have to pay GA sales tax on a car purchased in Georgia?

August 14, 2014 18:20 by Consumer Ed

Dear Consumer Ed:

I'm looking to buy a used car in Georgia, but I live in Tennessee. What is the law for collecting sales tax? I've been told Georgia dealers won't collect sales tax. I’ve also heard that if I pay cash, they won't collect sales tax, but if I finance it, they will collect my Tennessee tax and mail it to Tennessee. The Georgia Secretary of State said by law the dealer must collect Georgia sales tax and I may also have to pay Tennessee sales tax. Is it up to the dealer?

Consumer Ed says: 

The decision to collect Georgia taxes on the purchase of your vehicle is not in the dealer’s discretion. Instead, it depends on whether you apply for certificate of title in Georgia or another state (like Tennessee).  On March 1, 2013, Georgia’s motor vehicle tax rules changed:  as of that date, instead of the old sales tax, use tax, and annual ad valorem taxes being levied, any car purchased or leased and then titled in Georgia will instead be subject to a one-time tax called the Title Ad Valorem Tax fee (“TAVT”).  The TAVT is now the sole and exclusive method for taxing the purchase price of an automobile.  The TAVT is calculated by multiplying the Fair Market Value of the vehicle by the TAVT rate, which is currently set at 6.75% through the end of 2014.  The new law requires dealers to collect this TAVT from the customer, then submit the TAVT and the application for certificate of title to the particular county in Georgia where the vehicle will be registered.

But if you purchase a vehicle in Georgia and apply for certificate of title in another state, the dealer may not necessarily collect sales tax, use tax, or even TAVT on your behalf.  Instead, the dealer may have the purchaser execute a Nonresident Certificate of Exemption Purchase of Motor Vehicle (also referred to as Form ST-8), to allow for a “drive out” exemption.  This certificate is signed by both the purchaser and the dealer to affirm that the nonresident purchaser will immediately transport the vehicle out of Georgia and apply for title in his/her state of residence.  There are circumstances, however, particularly with financed transactions, where the dealer may collect and remit taxes on your behalf. Regardless, nonresidents won’t pay TAVT or Georgia sales tax, but will be subject to the taxing rules and policies of their home state when they apply for a certificate of title and register their vehicle in that state.

Keep in mind that if you later become a Georgia resident, you’ll be required to pay the TAVT on your vehicle.  This is because new residents moving into Georgia are required to register and title their motor vehicle in Georgia, which is when the TAVT is charged.  According to the new motor vehicle tax rules, new residents must pay 50% of the TAVT within 30 days of moving to the state, and the remaining 50% must be paid within the next 12 months.

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