A Used Car May Cost You Three Times The Purchase Price
“We Finance Anyone The Law Allows”
A familiar slogan from heard at many used car and some new car dealerships from coast to coast. Realizing that the economy is starting a slow recovery, the amount of available credit has increased but maybe not in the conventional locations.
The confessions of a used car salesman tells some experiences that many people may not really understand or were aware of. Some of the biggest profit is made in the secondary credit finance business. Interest on secondary credit, like car financing, is paying some investors double digits while your local bank could only muster up 2% APR in a good year.
It is usually the poor, minorities, single mothers and people recovering from financial hardships that cannot get conventional credit financing for reliable transportation for work or to get the gets safely to the soccer games and other activities.
The ads and promotions are creative and endless. “In house financing, fifteen different lenders standing by”… What many people may not realize is that shiny used car that they are driving off the lot may cost them two or three times the actual purchase price and sometimes even more. Those individuals that have questionable credit numbers are top candidates for alternative finance sources. Sometimes paying as much as 49% interest (yes, 49%) only because the customer sitting in the sales booth did not bother to read the fine print. All they were concerned about was the weekly or monthly payments and if they would be able to pay that amount.
If there is such a person as a “recovering used car salesman,” then I know one. One day, he tells a group of low income people sitting in a credit awareness class how they were the source for his daughter’s braces, luxury vacations, plastic surgery on his wife, not to mention his three dogs being pampered each week with pet care that was better than most medical coverage that is car customers had for their family.
“You see, you think that you are savvy,” he says. “But we have been trained and waiting for the poor and uneducated buyer.”
After sitting in a finance booth for sometimes two to three hours, the only two words you really want to hear is “Your Approved”. Wow, believing that someone is looking past your delinquent payment history and bankruptcy and repossessions and giving you another chance.
Those two simple words are what some commission used car sales people shout out loud “YOU’RE APPROVED!” It’s a green light for your signature, down payment and a host of other charges that they will conveniently wrap up in the finance numbers.
So where is all of this finally leading? The point is that a number of these “marginal” customers do not wind up being financed by the bank or credit union. In this particular scenario, the recovering used car salesman tells the group that much of his day was farming out finance papers to his cousin Vinnie, who was a very legitimate alternative lending source, who met all of the state regulations. Many go under the names of “acceptance” companies, “financial funders” or similar names. That is why these marginal customers are never making a payment to Bank of America, US Bank, Wells Fargo and other top financial centers. Those zero down, no interest for 36 months loans are based primarily on the small percentage of people at the top of the credit latter and not at the bottom.
Keep in mind that not all used car dealerships operate in this manner. I know many that have done the right thing by their customers and therefore brings them repeat business. This story is only to highlight those used car salespeople that will say and do anything to get your signature on that dotted line. In some cases, they will even try to get your grandparents to put up their home as secondary collateral if the principal borrower flakes out.
Now here is a very interesting tidbit to chew on. Many of us read the story of the young woman that was kidnapped on the streets of Philadelphia last week by a deranged individual. Her fate could have been worse, however, because the smart thinking of a used car sales person that sold the vehicle to the kidnapper. The dealership equipped the vehicle with a GPS tracking device, not because they thought the guy was going to kidnap anyone, it was because the car dealer knew that this guy was a credit risk and they could easily pick up the vehicle again and resell it when he defaulted on the payments and high interest rate.
Arm yourself with information so you will be ready to negotiate on a used car purchase. In a future article we will highlight who wins when it comes to renting furniture and appliances. The answer may surprise you.
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June 2010 Roy Jay’s Television Commercial for Toyota |
