How is this possible?

It is based on the language of the purchase contract. Look at your purchase contract. That’s the long yellow document that says “RETAIL INSTALLMENT SALES CONTRACT” at the top. Turn to the back of the purchase contract, and find the box that says “Seller’s Right to Cancel.” It is at the bottom of the second column. Car dealers are in the business of selling cars to consumers, not financing cars that consumers buy. So, this box advises you that after you sign the purchase contract and leave with the car, the dealership is going to find a finance company or bank to buy your contract. This language gives a car dealer the opportunity to find someone to buy your purchase contract. Most of the time this is not a problem. However, if the car dealer cannot find someone to buy your purchase contract, it can cancel the purchase contract. But, the car dealer must notify you within 10 days of the date on the purchase contract. If it does not, then the purchase is final and cannot be cancelled. Every purchase contract relating to a car purchase in California that I have reviewed has included this provision in it, and I have seen thousands of purchase contracts.

If the dealership cancels within 10 days, do I get my down payment or trade-in back?

Yes. The purchase contract requires the car dealer to return to you all consideration (i.e., everything) given for the purchase. This includes your trade-in vehicle. If you gave a $2,000 down payment and a car as a trade-in, the car dealer must give you back both the $2,000 and the trade-in when you return the car you purchased. Sometimes a car dealer may tell you that it already sold your trade-in, and will offer you the value of the trade-in as listed on the purchase contract. The language of the purchase contract does not appear to give the car dealer this option. It requires the return of the trade-in. However, if the car dealer does sell your trade-in, at the very least, you should tell the car dealer that it has to give you whatever is the highest value for your trade-in out of either (1) the value of the trade-in as listed on the purchase contract, (2) the fair market value, or (3) what the car dealer received when it sold your trade-in.

Can the car dealer charge me for using the car I purchased from them?

No. The car dealer cannot charge you for using the vehicle. For instance, it cannot charge you for the miles drove the car during the 10-day period. However, you are responsible for any physical damage to the car during the time it is in your possession.

What if the car dealer tells me they have a new purchase contract for me to sign?

If the car dealer exercises its right to cancel the purchase contract with 10 days, you are not required to sign a second contract to purchase that same car. Let me repeat this. A car dealer cannot force you to sign a second contract. If the car dealer cancels the purchase contract with 10 days, you are obligated to return the car, and the car dealer must give you back any down payment or trade-in that you gave with the purchase.

What should I do if a car dealer tries to cancel the purchase contract after more than 10 days?

The car dealer cannot cancel the purchase contract after the 10-day period has expired. If a car dealer tries to do this, you should advised it that your understanding is that the car dealer is no longer entitled to cancel the purchase contract, and ask the car dealer to send you letter explaining why it thinks it can still cancel the purchase contract. If you want to go forward the purchase contract, you should write the car dealer and advise it of this, and the fact that you will make you payments under the contract to it unless told otherwise.