Sounds like Dealer is trying to unlawfully persuade you to sign a 2nd contract, since they've been unable to assign the 1st. If dealer is cancelling the 1st contract, it has to give you all your money back. It cannot force you to enter into a 2nd contract, despite it potentially suggesting that you have to. Best thing to do is confirm -- in writing -- that contract 1 is being cancelled and confirm -- in writing -- that dealer is refunding all of your money (including returning your trade-in to you, if any, OR, if it sold your trade-in, then refunding the greater of: (a) the value they gave you for it as stated on the contract OR the trade-in's fair market value).
You can bet that whatever dealer told you re: "has taken them more time to summit all the paperwork for the finance of the car and it we ready by the 12/19/2015" is untrue and an effort to trick you into signing a 2nd contract with less favorable terms.
Best thing to do is go through with the cancellation, but just make sure dealer doesn't withhold any of the consideration that you have into the deal. If you'd like to discuss this more, feel free to call me Monday morning. 510-981-0867.
DISCLAIMER: This reponse is for informational purposes only and cannot be treated as legal advice. Legal advice depends on the specific facts of the particular matter at issue. Accordingly, you should not rely on or act on any information provided herein without consulting with legal counsel that is licensed to practice law in your jurisdiction. This response does not create an attorney-client relationship between you and the Law Office of Arthur J. Obolsky.
The dealer is playing games with you. Dealer has you in the middle of the old "Yo-Yo" scam, which is being used more and more these days.
Dealer cannot have it both ways. Also note, you ARE financed already. Dealer sold you a car on credit and agreed to finance you. What Dealer (allegedly) has not found is someone who will buy that very contract from them on the same credit terms they've agreed to sell the vehicle to you.
If you give my San Jose office a call I can give you some direction at no cost to you, depending on what you want to do. Have you received even one notice in the mail (from dealer or some finance company) stating your credit application has been turned down? If not, that alone is a violation of the law.
Call Mr. Obolsky (a fine attorney) in Berkeley or get in touch with my office locally on Monday for further guidance.