What is a Bailment Agreement and Should You Sign One

What is a Bailment Agreement

If you are buying a car and have arranged financing through the dealership, they may ask you to sign a bailment agreement before driving off the lot. But what is a bailment agreement, and is it in your best interest?

A bailment agreement allows the dealer to take back the car if they can’t secure financing at the terms promised. The agreement gives temporary possession to the buyer until final loan approval occurs.

While bailment agreements can offer helpful clarity in certain situations, some unethical dealerships use them to engage in “bait-and-switch” financing tactics after the buyer has taken possession of their dream car.

Below, I will examine bailment agreements in depth, including potential benefits, risks, key questions to ask, and recommendations so you can make an informed decision before signing on the dotted line.

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Table of Contents

What is a Bailment Agreement?

In simple terms, a bailment agreement is a temporary legal contract outlining the custody transfer of a vehicle between the car dealer (bailor) and the buyer (bailee).

It allows the buyer to take possession of a vehicle before financing is formally approved by the bank. The buyer essentially takes the car temporarily based on the dealer’s word.

Car Dealership Bailment Agreement Sample

Sample Bailment Agreement

Key Details of Bailment Agreements

Potential Benefits of Signing a Bailment Agreement

There are a few scenarios where having a formal bailment agreement in place could provide advantages:

However, the most common reason dealers ask buyers to sign one is when financing isn’t finalized yet.

Let’s dive deeper into this specific context and the associated risks and tactics to watch out for.

Spot Delivery & Deceptive Financing Tactics

Many dealers focus on streamlined “spot deliveries” – completing the entire car buying process as quickly as possible so the happy customer can drive their new vehicle home right away.

To achieve this instant gratification, they take your financing application and submit it for preliminary approval from banks and lenders. But this initial approval could have inaccuracies or get denied upon further review.

By having a signed bailment agreement in place, it gives the dealer leverage to call you back and renegotiate if financing falls through at the original promoted terms. They can legally threaten you to:

And you might feel forced to agree in order to keep the car you fell in love with and already spent time customizing and showing off.

Warning Signs of Spot Delivery Financing Scams

Evaluating a Bailment Agreement with a Car Dealer

Before agreeing to a bailment contract as part of your dealership financing:

Carefully Scrutinize Key Terms

Request Final Loan Documents Upfront

If a dealer pushes back on providing these financing specifics upfront, they likely don’t have formal bank approval yet and hope to buy time with a bailment agreement.

Seek Legal Guidance

If any aspect of the bailment agreement seems concerning or confusing, don’t hesitate to show it to legal counsel. An hour of lawyer consultation upfront could save thousands down the road.

Alternatives to Accepting an Onerous Bailment Agreement

Key Takeaways: Should I Sign a Car Dealership Bailment Agreement?

Understanding dealership bailment agreements in detail allows you to navigate negotiations better. While they provide limited benefits in specific use cases, excessive restrictions or inability to provide concrete financing specifics should raise red flags.

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