"Finance Only" Car Dealer

Originally Posted by wag123
Originally Posted by billt460
What's even scarier is the real estate market. People and lenders are going right back to doing what collapsed the real estate market the first time around back in 2008-2009. They didn't learn a thing.
The mortgage lenders learned PLENTY last time, they learned that they can get away with doing this with NO negative ramifications. The last time this happened... nobody was charged, nobody went to jail, nobody was fined, the Federal Government bailed them out, the bankers involved gave themselves big bonuses for the "trouble" (even though their activities crashed the economy), and no new laws were passed or rules made to prevent them from doing it again, and they are doing it again!


I was around the last time it happened. They were much more lax back then with option ARMS and no money down, no verification loans. At least they run your credit score these days and you still need to qualify. There's still a lot of people out there that have 20 to 50 percent or more for a down payment and you still run into buyers that have cash for a purchase. Inventory is also lower than it was in the past.
 
Boom and bust is how the big money is made. A crash is just an opportunity to buy low. Lending money to well-qualified people at 3%, even though they generally make every payment, is not a way to get rich. It's 3%. Any moron could do that by buying some blue chip stocks and sitting on them.

Mortgages were being written with basically no underwriting because there was always someone up the chain willing to buy the paper, no matter what it was. Key concepts being "securitization" and "default swaps." As a glut of buyers arrive with easily borrowed money, naturally it becomes a sellers' market and the prices shoot up. Same thing is happening with college tuition.
 
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We have a local used car dealer that is like that. No cash deals, finance only. I was told the local chevy dealer owns this lot but I don't know for sure.
 
Another thing with dealer-arranged financing is the interest rate they offer you. When they tell you that "BITOG Credit Union" will finance you for 6.25%, the real rate is probably 5.25% or 4.75% or something lower. The dealer gets the difference.
 
This is correct. Buy rate and sell rate. I'm sure it varies from state to state but here in Nebraska they can sell you the financing for up to 4% over the buy rate they are getting from the lender.
 
What kind of Blazer is this? Obviously not a new one, price seems like K5 or extremely clean K1500 Blazer territory, but usually those can be bought for cash. Finance only sounds more S-10 Blazer, but that price is way high for any S-Blazer unless it's some kind of perfect time capsule, which would have a cash price.

I bought my 1994 Ranger STX 4x4 4.0L at a buy here pay here lot five years ago for $2900 cash out the door. They had no problem with a cash sale. Most buy here pay here lots are happy to do a full cash sale if they aren't losing anything.
 
Originally Posted by mk378
Boom and bust is how the big money is made. A crash is just an opportunity to buy low. Lending money to well-qualified people at 3%, even though they generally make every payment, is not a way to get rich. It's 3%. Any moron could do that by buying some blue chip stocks and sitting on them.

Mortgages were being written with basically no underwriting because there was always someone up the chain willing to buy the paper, no matter what it was. Key concepts being "securitization" and "default swaps." As a glut of buyers arrive with easily borrowed money, naturally it becomes a sellers' market and the prices shoot up. Same thing is happening with college tuition.


I don't think you really understand anything about mortgages and most of what you state can't be further from the truth. The lenders make money by originating the loan. That's why they have all those fees. They also make money when the sell the loan. That 3% loan isn't on their books, they've just made the loan and sold it. They have to conform to guidelines otherwise they can't sell the loans. Those are non-conforming and they're kept in house which is why they're known as portfolio loans and usually they only do 5 year ARMs on them because they don't want to get stuck with the same interest rate for 30 years. Prices have shot up because inventory is still low and demand still exceeds supply. Back in the boom years, there was way more inventory and a lot more construction going on. The underwriting is actually getting worse due to all the regulations that go passed. Lots of times there are delays, just talk to any mortgage broker/title company/real estate attorney.
 
Originally Posted by Wolf359

I don't think you really understand anything about mortgages and most of what you state can't be further from the truth. The lenders make money by originating the loan. That's why they have all those fees. They also make money when the sell the loan. That 3% loan isn't on their books, they've just made the loan and sold it. They have to conform to guidelines otherwise they can't sell the loans. Those are non-conforming and they're kept in house which is why they're known as portfolio loans and usually they only do 5 year ARMs on them because they don't want to get stuck with the same interest rate for 30 years. Prices have shot up because inventory is still low and demand still exceeds supply. Back in the boom years, there was way more inventory and a lot more construction going on. The underwriting is actually getting worse due to all the regulations that go passed. Lots of times there are delays, just talk to any mortgage broker/title company/real estate attorney.


Yes, U/W's made money on the origination. Yes, there are guidelines they need to conform to.

From what I've read (quite extensively) there were quite a few "fudges" of the truth somewhere between the initiation of the loan and when it was purchased (investment banks and the like). After purchase, it was divvied up and packaged as an investment vehicle. Many of the divvied up parts were A rated (moody's S&P) based on mathematical models of the risk of those parts. Sometimes it was necessary for the packager to "help" the raters to understand the math behind why the investment grade warranted an A rating. It is worth noting that the packagers paid quite a bit of fees to the raters to have their investment parts blessed by the rater with an A rating.

Then the divvied up parts were sold to the ultimate investor (the government of Iceland was one such investor) who for the most part understood they were purchasing a top investment blessed with an A rating, and thus carried virtually no risk of loss on the investment. Eventually these investors found out the harsh truth when their investments lost significant value when the boom crashed in late 2008
 
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Years ago I was a buyer for a national chain of buy here pay here's that shall remain nameless. I'd buy 50 to 75 cars a week at auction for multiple lots, target was the $2500-$4500 range. Turn them around and list them for $12,000 at 25% interest. They had to pay every week and if a day late car was repossessed. Turned around many of those and resold, but about half would be junked within a month of new ownership due to neglect and beating on them. No bank would touch the buyers because of bad credit but we would finance anyone. Our clientele was the payday loan type of crowd for sure.
 
Originally Posted by SeaJay
Originally Posted by Wolf359

I don't think you really understand anything about mortgages and most of what you state can't be further from the truth. The lenders make money by originating the loan. That's why they have all those fees. They also make money when the sell the loan. That 3% loan isn't on their books, they've just made the loan and sold it. They have to conform to guidelines otherwise they can't sell the loans. Those are non-conforming and they're kept in house which is why they're known as portfolio loans and usually they only do 5 year ARMs on them because they don't want to get stuck with the same interest rate for 30 years. Prices have shot up because inventory is still low and demand still exceeds supply. Back in the boom years, there was way more inventory and a lot more construction going on. The underwriting is actually getting worse due to all the regulations that go passed. Lots of times there are delays, just talk to any mortgage broker/title company/real estate attorney.


Yes, U/W's made money on the origination. Yes, there are guidelines they need to conform to.

From what I've read (quite extensively) there were quite a few "fudges" of the truth somewhere between the initiation of the loan and when it was purchased (investment banks and the like). After purchase, it was divvied up and packaged as an investment vehicle. Many of the divvied up parts were A rated (moody's S&P) based on mathematical models of the risk of those parts. Sometimes it was necessary for the packager to "help" the raters to understand the math behind why the investment grade warranted an A rating. It is worth noting that the packagers paid quite a bit of fees to the raters to have their investment parts blessed by the rater with an A rating.

Then the divvied up parts were sold to the ultimate investor (the government of Iceland was one such investor) who for the most part understood they were purchasing a top investment blessed with an A rating, and thus carried virtually no risk of loss on the investment. Eventually these investors found out the harsh truth when their investments lost significant value when the boom crashed in late 2008


Yeah, that's what happened back before the crash. We used to do mortgages too and had those no money down, no income verification loans. Kinda funny when a homeless guy walked in once. I suppose from the advertising he could have also qualified, but I think he was just plain nuts. We humored him but he still needed a good credit score in order to qualify. We used to be able to get people who got paid under the table loans, but now that's all long gone, it's still much harder to qualify for a loan and I don't really run into very shaky buyers these days, they just wouldn't be able to compete with all the other buyers out there that have 20% or more. It might have eased up a little because loans used to get killed for very minor reasons, but that doesn't seem to happen as much anymore and the appraisers aren't as tough as they used to be. However many regulations were passed since those days and it's a mistake to say that easy money days are back again.
 
The risky credit people allow dealers to self finance at really high rates and or inflated selling prices. People poor with money get desperate and these places fill the need.
 
Originally Posted by madRiver
The risky credit people allow dealers to self finance at really high rates and or inflated selling prices. People poor with money get desperate and these places fill the need.



I guess that's how you get around usury laws. No laws against high prices.
 
The default rate is really high with these vehicles. These car sellers preying on poor and people just terrible with finance are not getting rich doing this, just making a living.
 
I think I bought a F150 from one of those lots once. Didn't think it was at the time. They got me into a 13% rate since it was my loan without a cosigner.. thought that was normal. My mom wanted to smack me upside the head.. She helped me with a loan from our bank my name only for less than 5% less than 2 weeks later. Either the dealership or finance called and threatened to repo the truck lol. Don't know how they got mom's number first but they calmed down considerably when they finally talked me! Nothing they could go since the new bank already had the title.
 
I was stupid enough in 1994 to sign a 11.99% APR 60 month loan on a new car financing $10k. The dealer and bank (GMAC) apparently split the 3% tack on profit as my friend who worked their peek at my loan.

Thankfully I paid the 5yr loan off in under 1 year.
 
Originally Posted by mk378
Boom and bust is how the big money is made. A crash is just an opportunity to buy low. Lending money to well-qualified people at 3%, even though they generally make every payment, is not a way to get rich. It's 3%. Any moron could do that by buying some blue chip stocks and sitting on them.

Mortgages were being written with basically no underwriting because there was always someone up the chain willing to buy the paper, no matter what it was. Key concepts being "securitization" and "default swaps." As a glut of buyers arrive with easily borrowed money, naturally it becomes a sellers' market and the prices shoot up. Same thing is happening with college tuition.


I don't think you really understand anything about mortgages and most of what you state can't be further from the truth. The lenders make money by originating the loan. That's why they have all those fees. They also make money when the sell the loan. That 3% loan isn't on their books, they've just made the loan and sold it. They have to conform to guidelines otherwise they can't sell the loans. Those are non-conforming and they're kept in house which is why they're known as portfolio loans and usually they only do 5 year ARMs on them because they don't want to get stuck with the same interest rate for 30 years. Prices have shot up because inventory is still low and demand still exceeds supply. Back in the boom years, there was way more inventory and a lot more construction going on. The underwriting is actually getting worse due to all the regulations that go passed. Lots of times there are delays, just talk to any mortgage broker/title company/real estate attorney.
Originally Posted by Wolf359

I don't think you really understand anything about mortgages and most of what you state can't be further from the truth. The lenders make money by originating the loan. That's why they have all those fees. They also make money when the sell the loan. That 3% loan isn't on their books, they've just made the loan and sold it. They have to conform to guidelines otherwise they can't sell the loans. Those are non-conforming and they're kept in house which is why they're known as portfolio loans and usually they only do 5 year ARMs on them because they don't want to get stuck with the same interest rate for 30 years. Prices have shot up because inventory is still low and demand still exceeds supply. Back in the boom years, there was way more inventory and a lot more construction going on. The underwriting is actually getting worse due to all the regulations that go passed. Lots of times there are delays, just talk to any mortgage broker/title company/real estate attorney.


Yes, U/W's made money on the origination. Yes, there are guidelines they need to conform to.

From what I've read (quite extensively) there were quite a few "fudges" of the truth somewhere between the initiation of the loan and when it was purchased (investment banks and the like). After purchase, it was divvied up and packaged as an investment vehicle. Many of the divvied up parts were A rated (moody's S&P) based on mathematical models of the risk of those parts. Sometimes it was necessary for the packager to "help" the raters to understand the math behind why the investment grade warranted an A rating. It is worth noting that the packagers paid quite a bit of fees to the raters to have their investment parts blessed by the rater with an A rating.

Then the divvied up parts were sold to the ultimate investor (the government of Iceland was one such investor) who for the most part understood they were purchasing a top investment blessed with an A rating, and thus carried virtually no risk of loss on the investment. Eventually these investors found out the harsh truth when their investments lost significant value when the boom crashed in late 2008

It's a completely different ballgame this time around. For example the QC performed on the back-end runs into the tens of thousands of loans per year and there are essentially only three players in the secondary market (FHA, GSE's) combined with limited products and generationally low rates. It's essentially all vanilla.

Oh ya and one final note. Do you know who never was charged for the fraud back in 2008? All those borrowers who lied on their loan applications and committed various forms of mortgage fraud. The public doesn't want to see grandpa hauled into court because he claimed he made $20k/month in order to take $200k cash out to buy his daughter a house.
 
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You can get a few deals at lots like that if you're a mechanic. Just have to remember that the cars on that lot are ones that reputable dealers sent to auction because they were too bad off for them to pay to fix or risk their reputation on. Would I say that everything on a buy here pay here lot is mostly unreliable junk? Yup! I learned that the hard way. $1900 for a $1900 car, then $2500 for a transmission rebuild equaled $4400 for a $1900 car.
 
There is no law against buying the car, signing the finance papers and paying it off a week later. Just be certain there are no prepayment penalties, or any other catches with the loan. Me I'd pass on that dealer, prepayment penalties or not.

Don't forget the financing fees they also add on.
Recently car shopping, had cash in my pocket, dealers hated that. Even If i was allowed to pay it off in a month, they still wanted a $500 financing fee. I bought My car from a private Seller, paid in cash.
 
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