Refund check from vehicle service contract was made out to me instead of lender. Can I cash it?

Question

I recently financed a vehicle and included in the financing total was a vehicle service contract. I cancelled the contract after having second thoughts. The dealership made the check out to me. Can I legally cash the check and keep the funds or does the bank receive it. Thanks

James L. Arrasmith · Answer

Based on the facts provided, legally the refund check should be paid to the lender, not directly to you. Here's why: 
 
- The vehicle service contract was likely part of the total loan financing with the bank, so they technically own that portion of the loan. 
 
- By cashing the refund check made out in your name, you would essentially be taking funds that should be going towards paying down your vehicle loan balance. 
 
- Regardless of who's name is on the check, the prudent course legally is to sign the check over to the lender so they can apply it towards reducing what is still owed. 
 
I would recommend contacting both the dealership and your lender, notifying them the check was incorrectly made out and needs to instead go to the lending bank per the financing agreement obligations. You can also simply endorse the check over to the bank for proper crediting. 
 
While tempting, keeping the refund could potentially qualify as misdirected loan funds. Best to transparently redirect the funds to where they legally belong - against the car loan. This avoids any legal complications down the road.

Q: Refund check from vehicle service contract was made out to me instead of lender. Can I cash it?