An Overview of Car Dealership Contracts
Purchasing a vehicle is a significant financial commitment for most people. In most cases, a car dealership contract accompanies the purchase of a new or used vehicle. Car dealership contracts are also commonly referred to as sales contracts. Understanding the key provisions of these contracts is essential prior to signing your name. However, sad to say, the average consumer does not review the terms contained in the dealership contract or do not fully comprehend its terms.
Generally, these contracts contain detailed information about the financing arrangement, including monthly payments, loan interest rates, and the duration of the loan . Additionally, the contracts include data regarding what services are included with the purchase of the vehicle (such as free oil changes). The agreement also outlines the warranties that the business provides to the purchaser as well as any waivers or limitations on those warranties. Understanding these important terms is vital, because once you sign the contract, it is very difficult to walk away from the deal. So all terms should be reviewed and fully understood prior to signing the contract.
Legal Reasons to Cancel a Contract
It’s vital for consumers to be aware of the legal grounds they may have for cancelling a car dealership contract, so that they know when they can do it without facing potential legal repercussions. Misrepresentation affects the buyer’s perception of value and/or worthiness in the deal. The misrepresentation can relate to the vehicle itself or the terms of use – examples include how much the monthly payments will be and the interest rate. It can also involve ads that were placed or what the salesman said when pressing the buyer to make a purchase on the spot.
Fulfilling the contract terms on either the buyer or seller side can also lead to a legal right to cancel in some cases. For instance, if an auto dealer is not being clear about what terms are required in order to get that car out of the showroom, that omission could play a role in whether this contract can be voided down the line.
If a buyer was pressured into signing, they may also have the ability to cancel. Salesmen sometimes employ aggressive or intimidating techniques to force someone into a deal. They may even manipulate their situation by exaggerating credit score estimates, explaining how easy financing will be, or not clarifying the risks associated with the deal terms before it’s signed. In such cases, the buyer may have legal grounds to cancel the contract.
Cooling-Off Periods and State Statutes
Buyer’s remorse is a natural reaction when making big decisions, like purchasing a new car. To account for this, some states allow buyers the opportunity to back out of a contract for a car purchase. These "cooling-off periods" are statutes that give buyers a set amount of time to cancel a contract without facing fees or penalties.
To qualify, you typically have to purchase a new car, not a used car, and you have to do so from a dealer or a private individual.
Those cooling-off periods don’t apply to dealership contracts; however, as there are no federal laws regarding them. While many states in the U.S. do offer some kind of cooling-off period, they vary by state. Some states, such as California’s California Vehicle Code Section 11713.2(a)(10), allow car purchases to be canceled for contracts signed within a specific period of time after signing a contract. Other states, such as Tennessee’s Code of Tennessee Annotated 55-17-106, consider any agreement for the sale of a vehicle with a value over $10,000 to be void unless the contract is signed by the seller, buyer, and a third party — a bonded motor vehicle dealer — after a three-day waiting period. Other states have stricter restrictions in the sales process.
To check the laws in your state, consult with your state attorney general’s office.
Implications of Cancelling a Contract
Depending on why you are cancelling, there may be penalties or consequences for doing so. Whether it be a contract for the purchase of the vehicle itself, into the lease agreement you may have signed, or into one of a multitude of warranty programs that dealerships create to entice buyers to enter into a purchase contract, the agreements you have signed will contain language to impose penalties if you decide to cancel. From my experience, given the amount of money you spend on the purchase of a vehicle, the penalty usually ranges from a few hundred dollars to a few thousand. If you financed the vehicle, you may have been charged anywhere from a couple of hundred to a few thousand more dollars for this provision. In addition to these financial penalties , you may also have to go through the same legal process to cancel the contract and assert your claims as you do when you first initiate your lawsuit against the dealer. Essentially, the law requires, in most cases, you must give them a chance to fix any problems with the car before you can cancel the agreement with them (if such terms were laid out in the agreement in the first place). If you were sold a gizmo or gadget rather than something you wanted, you may have funds held in escrow that the dealership will return upon your request. However, the penalties and consequences for cancelling the agreement may only apply to you, at least in the eyes of the law. If the dealer is part of your lawsuit and the dealer settles with the manufacturer, you may still have a claim of damages because as part of the settlement, the dealer is forbidden to try and collect anything from you after their suit is settled.
How to Cancel a Contract
While it is obvious that you should consume as much of the contract terms as possible before liquidating your potential contractual relationship, it is almost equally as important to inspect the actual vehicle. If you missed a scratch or some other problem, you may have other options that a dealership cannot cancel the contract once you have signed it.
Some other steps you should take before trying to cancel the contract:
1. Read the contract for red flags.
2. Take your time and do not act in haste.
Alternatives to Cancelling a Contract
If the contract you entered into with the car dealership is not exactly what you were expecting, there may be additional options available to you that do not involve complete cancellation of the contract. Many contracts contain clauses that may allow you to cancel for certain reasons, or give the parties the flexibility to renegotiate certain terms in the event that things do not go as intended.
In some cases, you may have a legal right to have the contract modified or reformed due to fraud in the inducement, unconscionability, lack of capacity, violation of public policy, and other factors. Under fraud in the inducement, if one party to the contract made misrepresentations or omissions of material fact about the product being purchased, the other party may have a right to cancel or re-negotiate the contract. For example, if the dealership misled you about the price of the vehicle, the extent of repairs needed, or the financing terms, you may have a case for fraud in the inducement.
Unconscionability deals with whether your contract has overly harsh, unfair , or one-sided terms. A dealership contract that is substantially different from the industry norms may be found unconscionable, and subject to modification or reformation. If you felt that you were not in a position to negotiate any parts of the contract due to mental or physical incapacity, this is called lack of capacity, and may be a valid reason for cancelling the contract. Weakened bargaining power, such as a language barrier, can also give a court a reason to reform a deal.
Some contracts actually provide clauses that allow you to trade your vehicle back to the dealership in certain circumstances. There may also be a "cooling-off" period which allows you a certain number of days to back out of the deal without penalty, or you may have the right to ask for an adjustment of the purchase price in the event of defects in the vehicle. If your contract allows for these types of terminations, you may be required to follow these procedures rather than simply backing out of the agreement.
There are therefore other possible options to outright cancelling the car dealership contract.