The 10-Day Rule In Auto Financing Explained

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In California, the dealer has 10 days to find a lender for a car purchase (typically called the 10-day rule in auto financing). After 10 days, the dealer becomes the lender. If a dealer cannot find a lender within 10 days of the sale, they have the right to cancel the contract.

However, they only have 10 days to call you and ask you to return the car. AND, they MUST give you all of your money back. The dealer must refund your down payment and your trade-in without any deductions for use.

If the dealer already sold your trade-in (which is perfectly legal), they MUST give you the money from the sale of the trade-in OR the contract amount that dealer offered for your trade (whichever amount is HIGHER).

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Sometimes, you will get a call saying that the dealer wants the car back AFTER 10 days. Remember, the dealer automatically becomes the lender after 10 days. At that point, you have the right to:

  1. keep the car,
  2. enforce the contract, and
  3. pay the dealer.

While the 10-day rule in auto financing is fairly simple, enforcing the rule becomes not so simple after 10 days have passed. Dealers typically don’t want to honor the original contract unless they are going to make a substantial profit, and if they are going to lose money, they will do whatever it takes to cancel the contract.

You may need to contact a lawyer if you want to enforce your original contract and keep your car.

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Every day, we hear from car buyers who believed they got a great deal when they bought their car, only to get a call from the dealer later telling them that “financing fell through”.  In fact, dealers usually know from the minute they pull credit whether or not a buyer will qualify for financing.

However, dealers ALWAYS want to make a sale, no matter what!  What happens in many cases is that the dealer tells the buyer they are “approved” for a specific payment and interest rate, knowing that the “approval” is fake.

A classic bait-and-switch scenario is the fake approval, followed by a call where the dealer blames the car buyer for some kind of “problem” with their finance application.

Here’s an example.

Dealer calls Buyer and says, “looks like you didn’t tell the truth on your credit application, or your credit dropped because of late payments on your credit cards, or you haven’t been at the job as long as you said (or whatever reason to make the buyer feel ashamed) so the financing fell through.”

In a situation like this, the dealer takes advantage of the buyer by offering to find “new financing” and have the buyer sign a “new contract”.

Most of the time, the dealer knew financing was not available when the first contract was signed, or the dealer shopped the loan around and realized they wouldn’t make as much profit on the deal as they originally expected.

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Here’s essentially what the law says in California: a car dealer can cancel the contract in the first 10 days, but after that, it’s up to the buyer whether to make the dealer honor the contract or allow the dealer to cancel.

This is where it gets stressful for the buyer.  Anybody who has bought a car knows that there is an attachment formed between the buyer and the car from the moment the test drive occurs.  That attachment is deepened when the contract is signed and the car is driven off the lot.

When the dealer calls and says “the deal is off”, many buyers want to do whatever it takes to keep the car.  Dealers know that. They take advantage of buyers by making them come back to the dealer and sign a second or third contract that is worse than the original contract; the payments or interest rate is usually higher, and more options are often added.

If the buyer knows their rights and says, “I want to enforce the original contract because I have had the car for more than 10 days”, the dealer will usually resort to threats such as, “we will report the car stolen and send the police to your home or office, and we will repossess the car and ruin your credit.”

Most buyers don’t want to deal with dealer threats and intimidation, so they return their cars or go back to the dealer and sign “new – worse” contracts.

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If your dealer is violating the 10-day rule in auto financing in any way, don’t hesitate to call us. A typical scenario with the 10-day rule can spiral out of control very quickly, so we recommend talking with an experienced lawyer immediately to see what free legal advice they may have for your situation.

We have helped hundreds of car buyers to sue their dealers. We know that a sophisticated dealer will always make you feel like any problem with financing is your fault. Don’t let the dealers take advantage of your insecurities about your credit score and any blemish on your credit.

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