Can a Bank Revoke a Loan on a Car After I Signed the Contract?

Whether or not a bank can revoke an auto loan depends on the contract you have with them. If you’ve financed your new car at the dealership, they could also deny your financing after you’ve driven the car off the lot.

Find out more about how this could happen, what other issues you should watch for, and how you might deal with it.

In This Piece

• Can you be denied after purchase?
• Why would a loan be denied after you signed?
• What can you do if it happens to you?
• How to avoid it

Can You Be Denied a Car Loan After Purchase?

You can be denied a car loan after you’ve purchased it. It’s unlikely that a bank will do so, but it’s more common for a dealership to revoke a loan if you’ve financed through them.

Banks

If you got your loan through the bank directly, it’s rare to have your loan revoked after you’ve purchased your car. Banks may be able to revoke your car loan if your contract had language that protects the bank’s right to do so. Always read the fine print on auto loans. It’s more likely that there has been some sort of mistake, and you should contact your bank immediately to discuss your options.

Dealerships

If you got financing at the dealership, however, you could discover later that the financing has not gone through and you must return the car. This is typically because car dealerships don’t finance loans themselves: after you purchase the car, the dealership sells your loan to a finance company or bank to maintain. After reviewing your application, the bank may require a larger down payment or different terms. And if the dealership is unable to find a bank willing to fund your loan, you may be required to return the car. This is called a “spot delivery” and it’s not always clear to buyers that they haven’t officially been approved for a loan.

Learn more

Review your contract carefully for a “seller’s right to cancel” clause before signing anything. The dealership will attempt to sell your contact to a finance company or bank, and they typically have a certain number of days to do so—after which they may cancel your contract.

Why Would a Car Loan Be Denied After You Signed All Papers?

Even if a dealership has preapproved you for a loan, the lender has the final say. They’ll take a closer look at your application and credit profile than the dealership likely did, and they may find a few reasons to deny you a car loan.

• Poor credit or no credit is a common reason for loans to be denied. Take a look at your credit score before going to the dealership so you have a better sense of your credit strength. ExtraCredit shows you 28 of your FICO® scores, including those most commonly looked at by auto lenders.
• Incorrect information on your application may lead lenders to deny your loan. Make sure you fill out your application completely and accurately.
• Too much debt can make lenders nervous. Make sure that you have enough discretionary income to make your new car payments before attempting to apply for a new loan.

What Can You Do if You’re Denied a Car Loan after the Fact?

If the bank legally revokes the loan, you’ll probably receive a letter asking you to bring the car back to the dealership. The dealership is now out a sale it may have already marked in the finalized column. So, your salesman and the dealership finance department might be keen to help you take care of the problem by finding financing elsewhere.

But before you do that, it’s a good idea to take a few steps.

1. Read your contract. Make sure the bank is within its rights.
2. Contact the lender and ask why the loan was revoked. It might be a misunderstanding or clerical error you can easily resolve. And if it’s something bigger, you need to know about it before you apply for more financing.
3. Consider consulting legal counsel. If you don’t think the bank is within its rights under the contract or you think you might be a victim of a spot delivery scam, reach out to a lawyer for help.

How to Avoid This Issue

One of the best ways to avoid this issue and not worry about your loan being revoked after the fact is to get preapproved for a car loan on your own before you visit the dealership. You can apply for car loans online and get approved for a certain amount. Then, when you arrive at the dealership, you’re armed with buying power you can count on.

Before you apply for a car loan, consider signing up for ExtraCredit to get details about your credit history and score and where you stand in all the important categories.