Can you back out of a deal on a new car?

Here’s a tip for new-car buyers who signed on the dotted line, only to find a cheaper offer up the road.

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It could be the gleaming showroom or that new-car smell, but it’s understandable to get caught up in the moment and sign on the dotted line and place a deposit for a brand-new car.

You’re excited, you want out of your old heap, and the dealer makes it sound so easy and affordable.

But you need to know something very important before you walk through the showroom door.

Dealer staff are well trained in closing a deal, even if you’re ‘just browsing’. I should know, because it happened to me.

I went into a showroom to kill time (and enjoy the air-conditioning on a sweltering day) and drove out in a new car a week later.

Every question you are asked – from the moment the salesperson introduces themselves and shakes your hand – is a calculated step-by-step process to size-up how soon you’re ready to buy.

What is your access to money like? Borrowed or in your bank account?

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With a smile they will ask questions such as ‘when are you looking to buy’, ‘do you live in the area’, ’do you have a trade-in’, ‘do you have finance arranged’? The list goes on.

They want to know answers to these questions so they know if you’re in the final stages of buying and how much time to invest in you.

They want to know if you’re local because you’ll probably get the car serviced by the selling dealership too. In some cases dealers have hidden incentives from car companies to sell to customers in their area.

The trade-in is an opportunity to make more money out of the deal (there’s often more profit in used cars than new cars, especially at the lower end of the market).

They want to know about finance because (a) that can be a barrier or a green light to a deal, (b) they earn money from finance kick-backs, which can affect the price they offer on the car, and (c) if you pay cash or get outside finance there is no chance of getting a kickback, so they might not limbo as low on the price of the car.

The only good thing about cash (although they prefer bank transfer these days due to a batch of bogus bank cheques once upon a time, unless you’re happy to wait for the bank cheque to clear which can take a couple of days) is that you’re good to go if the price is right and they can get the car you want.  

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Their job is to remember your answers, too, so they can tell when you’re not being truthful about your circumstances, giving them in theory the emotional upper hand because you know you’ve been caught out.

So while still being polite, feel free to be as vague or as non-committal as possible until you know more about what you want to buy.

A quick side note before we explain if you’re ever able to back out of a deal. Dealer staff are human, too, trying to earn a living and put food on the table. 

They work long hours, get knockbacks all day, are under constant pressure to sell more cars, and generally receive a very low base rate of pay.

So, what happens when your plans to be a fortress of strength go by the wayside and you end up signing a deal on a car that you find out later you may have paid too much for? What if your financial circumstances change?

This recently happened to a friend of a friend. She put a $1000 deposit on a top-of-the-range version of a just-released in-demand model. 

The car would be delivered in three weeks and the dealer gave an estimated delivery date on the invoice. This was a smart move by the dealer because that way she can’t complain about the car not arriving soon enough. It also gives the buyer a way out if the car doesn’t turn up in time. These were the terms the buyer agreed to.

But as many new-car buyers do, the customer kept looking. She claims to have found the same model for $8500 less than what she had signed up for. Ouch.

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Which brings us to another rule of thumb we recommend: visit at least three dealers – or more until your legs are about to give up – before you sign anything.

This exercise also means you’ll know more about the car you want. And you’ll be able to better spot the patterns of behaviour from sales staff. ‘May I get your phone number?’, they will almost always ask. 

A sales person for one car dealer recently told me ‘sorry I don’t have a business card, but if you just type your details into this iPad I will send you my contact details.’ Argh. I politely declined so I wasn’t harassed by phone once I left the showroom.

So, back to our friend of a friend. I did some checking with dealer contacts and it turns out she’s in a tricky situation.

There is a provision for a three-day cooling off period in most states in Australia, where the deposit is refunded in full with no questions asked. 

After that, it’s up to the dealer’s discretion but, depending on the circumstances, they tend to do the right thing and refund the deposit because they don’t want a bad review on Google.

But there are other ways to wriggle out of a deal if you really must. 

If you tick the box that says ‘finance pending’, you can use that as an excuse to call off the deal if you’ve opted to apply for finance outside the dealership.

In-dealer finance is harder to wriggle out of (unless your application has genuinely been knocked back) because the dealer knows your circumstances.

If you’ve been knocked back by a lender outside the dealership, the dealer will likely try to put you in front of their in-house finance provider. But you’re within your rights to say, ‘sorry I’ve done my sums and I’m out of my depth

’, or ‘I don’t want to pay such a high interest rate, unfortunately I can’t proceed with the deal’.

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If the buyer planned to pay cash or claimed to already have finance arranged – and didn’t tick the “finance pending” box – a refund of the deposit is at the dealer’s discretion. 

Best to be polite and as honest as possible, you’re a better chance to get your money back. Especially amid the current stock shortages, when dealers are scrambling for new cars to sell. They will sell it to the next person who walks through the door.

After seeing the invoice given to the friend of a friend – for the car she had agreed to buy at the price the dealer quoted –  it turned out she was charged full price every step of the way. And then some.

Not uncommon on certain in-demand cars, and amid current new-vehicle shortages.

That said, a price gap of $8500 on an identical brand-new $40,000 car is over the top. The customer had been quoted the full price for the car, $2500 for dealer delivery (in most cases, this is also negotiable), a premium price for window tinting and paint protection (two areas where that can overtake the profit from the car itself). 

My advice was to plead for a refund of the $1000 deposit based on changing circumstances. If not, be prepared walk away from the deal and go up the road. She would still be at least $7500 in front.

So how did it all unfold?

She didn’t want the hassle and ended up staying with the original deal. That $8500 gap will equate to more than $11,000 by the time the loan is paid out over five years.

The lesson: don’t sign anything until you’re prepared to stick with the deal in front of you. And tick the box on the contract that says “finance pending”, even if you’re paying cash. That way you have an out.

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