Kelly’s Korner: Liability of Down Payment Loan
Q: What repercussions or liabilities occur when the dealership gives the customer a down payment loan?
A: When a dealership arranges a down payment loan, it is called a “seller-assisted loan”. This loan must be disclosed to the lender because it increases the customer’s debt load.
Every contract has a place for the disclosure of seller-assisted loans. Failure to disclose can be viewed as misrepresentation and cause the loan to go into “unconditional guarantee status”. This means the lender may call the note due at any time, and the dealer will have to pay off the loan and become the lender.
Non-disclosure of a seller-assisted loan can also be viewed as bank fraud, which could cost the dealership a lender and create future legal problems. Check with an attorney in your state before assisting your customers with down payment monies.
Q: Is using a MasterCard or Visa credit card as down payment viewed as a seller- assisted loan?
A: Yes, both MasterCard and Visa credit card activity is viewed as a seller-assisted loan. Both charges can potentially increase the customer’s monthly debt load. Anything that alters a customer’s monthly budget is viewed as a seller- assisted loan.