In an ironic catch-22, many of the nation’s working poor need reliable transportation to get to work or search for a job. But with low salaries and often spotty credit histories obtaining an auto loan can be a nearly impossible challenge.
A new breed of entrepreneur has stepped in to take advantage of such dire situations. Known as Buy Here Pay Here dealers, these used car salesmen specialize in offering high-mileage, high-wear vehicles to people who need cars but don’t qualify for traditional auto loans.
Overpriced vehicles are sold with 24% interest rate loans, repossessed with the quickness, and then sold to the next victim. Burn and churn is the name of the game in the Buy Here Pay Here used car business.
And the methods of these dealers are exposed in a special series this week by LA Times reporter Ken Bensinger.
In a kind of financial alchemy, they have found a way to turn clunkers into cash cows and make money off the least creditworthy customers: the millions of Americans who are stuck in low-paying jobs, saddled with debt and unable to qualify for conventional auto loans.
For many of these people, having a car is the only way to stay employed, and they’ll accept almost any terms to get one.
With profit margins twice as high as conventional dealerships, Buy Here Pay Here dealers win no matter if the consumer can pay back the auto loan or not.
About 1 in 4 buyers default. In the real estate and credit card industries, that would be bad news. In the world of Buy Here Pay Here, it’s just another avenue for profit: The car can be repossessed and put back on the lot for sale in short order. A new buyer makes a down payment, takes on a high-interest loan and the cycle starts anew.
…….Default and repossession are so central to the business that many dealers plan on both. They equip cars with hidden GPS devices and remote-control ignition blockers to make the repo man’s work easier.
Visit the LA Times to read the three part series:
Monday: A vicious cycle in the used-car business
Tuesday: Investors place big bets on Buy Here Pay Here used-car dealers
Thursday: Is there a better way for the working poor to find wheels?
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