What is mandatory binding arbitration in an auto purchase agreement?

Many auto finance contracts contain mandatory binding arbitration clauses. Some dealers may also ask you to sign separate binding arbitration agreements.

By signing a contract with a mandatory binding arbitration provision, the dealer or lender can seek to resolve any disputes about the contract with an arbitrator, who is usually chosen by the dealer or lender. The arbitrator decides the dispute instead of a court. It may also result in the waiver of other rights, such as your ability to appeal a decision or to join a class action lawsuit. The rules in arbitration can also be different than the rules in court.

Before you sign any contract and drive your car off the lot, read through each detail of your contract, and if you don’t understand aspects of your loan or contract, make sure to ask questions. You may also ask that the clause be stricken from the contract, but the dealer or lender may say no.

If you’re uncomfortable with any aspect of the process, you can walk away. Learn more about what you should know before you finalize a car or auto loan.

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