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Old 1st June 2017, 15:35   #1
GTO
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Default Unique type of American car dealerships : Buy here, Pay here

Don't know about you guys, but I'm a HUGE FAN of well-written long form articles. This article is superbly written, deeply researched and is very interesting for us car guys.

What are 'buy here, pay here' dealerships?

- They'll sell & finance a car to anyone, even to folk who have bad credit, history of loan defaults etc.

- The dealer also finances the car himself.

- Most cars on the lot are usually old models with 100,000 miles on them.

- The car is priced at a significant premium over its actual retail value.

- The USA has always had astonishingly low interest rates. Buy here, pay here lots however charge as much as 30% interest!

- It's not uncommon for the same car to be sold multiple times by the same dealer.

Think of it like this - a car dealer in Pune selling cars to just about anyone. Rs. 50,000 down and 72 monthly payments of Rs. 10,000 on a WagonR with 1 lakh kms on the odo. We won't see such a kind of dealership in India though as it's easy for the customer or car to get 'lost' in the country. Our legal framework is too weak for this business model. Additionally, India is a bike country and anyone who needs personal transportation can easily buy a 50k motorcycle.

Full LA Times Article

Quote:
Tiffany Lee wanted a car. She was weary of the two-hour bus ride to her job at a UCLA Health System clinic. She hated having to ask friends to drive her 7-year-old son to his asthma treatments.

But as a single mother with three children, bad credit and a $27,000-a-year salary, she couldn't find a bank or dealership willing to give her a loan.

Then a friend steered her to Repossess Auto Sales in Hawthorne.

Another buyer might have balked at the deal she was offered. Lee figured she had no choice. She put $3,000 down and drove off in a 2007 Ford Fusion, agreeing to pay $387 a month for four years. The interest rate: 20.7%, nearly triple the national average for a used-car loan.

A year and a half later, Lee fell behind on her payments and filed for bankruptcy. So she was relieved when the dealership called and offered to make her loan more affordable. The sales manager even promised to throw in a free smog check. Lee, 35, drove back to Repossess Auto on a rainy Monday evening, handed the keys to an attendant and sat down with the manager.

There would be no new deal. Lee's car was being repossessed. She and her children waited in the rain until a friend could drive them home.

Last edited by GTO : 1st June 2017 at 15:42.
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Old 1st June 2017, 15:43   #2
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Default Re: Unique type of American car dealerships : Buy here, Pay here

There are such people in India too. They are called loan sharks.
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Old 1st June 2017, 15:51   #3
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Default Re: Unique type of American car dealerships : Buy here, Pay here

One might even say some people should not be extended fresh credit if they have a bad history of paying off loans.
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Old 1st June 2017, 16:01   #4
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Default Re: Unique type of American car dealerships : Buy here, Pay here

Quote:
Originally Posted by GTO View Post
I'm a HUGE FAN of well-written long form articles. [/url]
If this topic interests you, grab some popcorn.

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Old 1st June 2017, 16:56   #5
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Default Re: Unique type of American car dealerships : Buy here, Pay here

Sounds a bit like Payday Loans. How about an interest rate of 300% to 3000% per annum in a country of low interest rates?
https://en.wikipedia.org/wiki/Payday_loan

But why do these guys go to such places when they have $3,000 in their pockets? Why not buy a 15 year old Toyota Corolla?
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Old 1st June 2017, 18:06   #6
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Arrow Re: Unique type of American car dealerships : Buy here, Pay here

Quote:
Originally Posted by smartcat View Post
But why do these guys go to such places when they have $3,000 in their pockets? Why not buy a 15 year old Toyota Corolla?
Because that's probably all they have. It's difficult to pop down $3000 on a car when you're trying to pay rent, bills & feed your family on a single low income.
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Old 1st June 2017, 19:57   #7
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Default Re: Unique type of American car dealerships : Buy here, Pay here

Several years ago, as a first time work-permit (H1) holder in US, I had absolutely no credit history and so buying a new car on lien was almost impossible.

I was naive when it came to cars back then, so after spending some time looking at options like buying used cars locally (direct from owners & dealerships), I landed at Carmax and bought a pre-worshipped 8/9 year old Ford Taurus (with clean history, in immaculate condition and certified by them) and a hassle-free financing option from them.

Last edited by NPV : 1st June 2017 at 20:02.
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Old 1st June 2017, 21:33   #8
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Default Re: Unique type of American car dealerships : Buy here, Pay here

Reminds me of an article I read in Guardian sometime back. The car-loan boom isnít the housing bubble. But there still might be a crash

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Originally Posted by aah78 View Post
Because that's probably all they have. It's difficult to pop down $3000 on a car when you're trying to pay rent, bills & feed your family on a single low income.
The woman referred to in the LA Times article paid $3000 as down payment though.

I think its the lure of owning a better car (relatively newer and bigger) for the same money that they have in hand which make the prospective buyers opt in for these time bomb loans.
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Old 1st June 2017, 21:35   #9
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Default Re: Unique type of American car dealerships : Buy here, Pay here

Looks like main dealers are getting into this act too!

On a recent trip to USA, I was speaking with a colleague who had moved there about a year ago. He had about $5K in cash for down payment. His local Ford dealer sold him an Escape, and financed it, based on Visa and a couple of payslips. Interest rate was in the region of 8%.

Last edited by KiloAlpha : 1st June 2017 at 21:36. Reason: grammar
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Old 2nd June 2017, 15:54   #10
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Default Re: Unique type of American car dealerships : Buy here, Pay here

Quote:
Originally Posted by reignofchaos View Post
There are such people in India too. They are called loan sharks.
Hahaha - true! Loan sharks are there in the USA too. However, this is different - it's a car dealer who is selling you the car + financing it himself.

Quote:
Originally Posted by honeybee View Post
One might even say some people should not be extended fresh credit if they have a bad history of paying off loans.
That's why the steep interest rates. They know the default rate is going to be high.

In many cities of the USA, you simply cannot survive without a car.

Quote:
Originally Posted by AbhiJ View Post
If this topic interests you, grab some popcorn.
Thanks! Added to my YouTube watch later list.

Quote:
Originally Posted by smartcat View Post
But why do these guys go to such places when they have $3,000 in their pockets? Why not buy a 15 year old Toyota Corolla?
I agree. Bought a 10 year old Honda Accord with ~90,000 miles on the odo for $3,200 during my MBA. It worked beautifully for the 2 years I was there. Got a nice gujju green colour too . Here I am getting a free-flow exhaust installed:
Unique type of American car dealerships : Buy here, Pay here-007.jpg

Quote:
Originally Posted by NPV View Post
I landed at Carmax and bought a pre-worshipped 8/9 year old Ford Taurus (with clean history, in immaculate condition and certified by them) and a hassle-free financing option from them.
Carmax is just superb. They charge a li'l premium, yet most people agree it's worth it for the hassle-free nature of dealing with them. What's better is the long warranty they offer, even on used 6-year old Range Rovers. This is a story worth listening to (he speaks so well):


Quote:
Originally Posted by deetjohn View Post
I think its the lure of owning a better car (relatively newer and bigger) for the same money that they have in hand which make the prospective buyers opt in for these time bomb loans.
True. In the LA Times article itself, an idiotic couple traded up to a Mercedes-Benz at a Buy Here, Pay Here lot .
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Old 2nd June 2017, 16:23   #11
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Default Re: Unique type of American car dealerships : Buy here, Pay here

Strangely, this topic does not surprise me at all.

US is a country where in you definitely need a personal transport. Why?
1. Large country with population scattered across.
2. Only metropolitan areas like NYC, DC, etc have decently connected public transport
3. Safety concerns in available public transport systems
4. Housing might not be affordable close to business districts. Parents look for decent school districts.
5. Impossible (i.e., expensive, even for USA) to connect all of its cities via public transport (Buses/Trains). It takes 3 hours from NYC to Orlando by air (two cities on the NE coast), imagine by train!

Given this, incomes are more or less stagnant in the USA, across occupations and age groups (not very strange, given inflation is always in low single digits!).

In order to buy a car for a family with a single earner (add low wages) - it is a challenge there. Until or unless you are making decent $60K per year. You cannot expect staff at an average McD store to make as much.

Desperate need for car + low credit profile --> Financial innovators will see an opportunity! (Remember, USA is also land of innovations. Innovations of all sorts of things. Snapchat to Financial products).

Average person will fall prey to this.

There have been quite a few reports saying this is the next 'sub prime' crisis (like that of year 2008) waiting to happen in the USA, given that the quality of loans is pretty bad.

But, it looks like people (mostly regulators) are ignoring this since the size of these loans are not huge!

Wonder how this would stop!
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