"Buy here, pay here" used car dealerships are known as "note lots". They're the most insanely profitable portion of the car business. Here's how.
The owners of a note lot don't go cruising the newspaper looking for $10,000 cars to buy. Instead, they typically repurchase cars from new car dealers. Ever wonder what happens to those cars that get traded in but are hardly worth anything? New car dealers typically don't want to sell $500-$1000 cars - there's not much money to make and they're generally in lousy shape, so your customer has a significant chance of coming back ticked.
So those cheap cars are sold to wholesalers, to get 'em off the new car dealer's hands, and this is a major source of "note lot" cars. Get the car for a grand, give it to the mechanics to clean up, and sell it to people with terrible credit (450 or less).
The note lot generally recovers all its costs from the down payment alone. The "payments" (generally, these sales are structured as leases) are pure profit, so the note lot dealer just sets them at whatever he can get out of the buyer. If they can pay $300/mo, they'll be paying $300/mo. Generally these terms are attractive to somebody who's been told "no" by fifteen different dealers (really, by the banks) - a lower down payment and monthly payments than anything they could get bank-financed. Of course the car isn't worth NEARLY as much either, but the note lot dealer doesn't tell you that. And if you're desperate for a ride, you're not going to negotiate very hard...
They're not -total- ripoffs, usually because they'll have a deal going with a nearby garage (or run their own) to keep the car running inexpensively. Since every payment is pure profit, it's in their interest to keep you in that car. But if you don't pay, and they repo your car (and since it's a lease, it doesn't take them long), they can then take the car and sell it for the same deal to someone else, making even more money! And then they report the loss of the future payments you didn't make against their taxes...
However, if you have enough to pay the down payment at a note lot, you can buy a used car from a private seller with that money. Takes you a bit more time, but at least it's bought; if it craps out, you're not stuck paying on it.
Slashdot Mirror
"Buy here, pay here" used car dealerships are known as "note lots". They're the most insanely profitable portion of the car business. Here's how. The owners of a note lot don't go cruising the newspaper looking for $10,000 cars to buy. Instead, they typically repurchase cars from new car dealers. Ever wonder what happens to those cars that get traded in but are hardly worth anything? New car dealers typically don't want to sell $500-$1000 cars - there's not much money to make and they're generally in lousy shape, so your customer has a significant chance of coming back ticked. So those cheap cars are sold to wholesalers, to get 'em off the new car dealer's hands, and this is a major source of "note lot" cars. Get the car for a grand, give it to the mechanics to clean up, and sell it to people with terrible credit (450 or less). The note lot generally recovers all its costs from the down payment alone. The "payments" (generally, these sales are structured as leases) are pure profit, so the note lot dealer just sets them at whatever he can get out of the buyer. If they can pay $300/mo, they'll be paying $300/mo. Generally these terms are attractive to somebody who's been told "no" by fifteen different dealers (really, by the banks) - a lower down payment and monthly payments than anything they could get bank-financed. Of course the car isn't worth NEARLY as much either, but the note lot dealer doesn't tell you that. And if you're desperate for a ride, you're not going to negotiate very hard... They're not -total- ripoffs, usually because they'll have a deal going with a nearby garage (or run their own) to keep the car running inexpensively. Since every payment is pure profit, it's in their interest to keep you in that car. But if you don't pay, and they repo your car (and since it's a lease, it doesn't take them long), they can then take the car and sell it for the same deal to someone else, making even more money! And then they report the loss of the future payments you didn't make against their taxes... However, if you have enough to pay the down payment at a note lot, you can buy a used car from a private seller with that money. Takes you a bit more time, but at least it's bought; if it craps out, you're not stuck paying on it.