How big of a rip off are "Buy here, pay here" car lots?

A couple new car lots have popped up in town. Their signs say WE FINANCE! bigger than the name of the car lots. Basically I take this to mean “We finance anyone, even those with horrible credit.”

We have those “Payday loan” and “rent to own” places as well and I know those are utterly awful. Just how bad are the “Buy here, pay here” places? We even had a “rent to own auto” place at one time but that didn’t last long. I understand they had a transmitter in the car and would prevent the car from starting remotely if you didn’t pay. It would transmit the location to the car lot and they could come repo it.

I am just curious… How high is the interest on these loans? I assume there is some huge catch to them. Or do they promise super low interest on a super overpriced car?

How about extremely high . Unfortunately that is the only way some people can finance a vehicle because their credit is bad. The drawback is that even if the people meet the payment schedule very few of those places report to the credit sites. Also the vehicles are never bargain priced.

Their interest rates are high and their cars are overpriced and nowhere near as good as those you would find at the used car lot of a new car dealer.

They have high expenses because they serve a market of people who have no money or credit and have a history of not paying for things or not taking care of what they buy.

It seems to sort of balance out, neither customer or dealer could exist without each other.


I heard someone complaining about what a rip off the cars were at one of these places but yet the place stays in business year after year. Apparently people who make bad decisions keep going back for more. I talked to a guy who sold cars in the $1000 range. He would always put the most expensive synthetic motor oil in them, figuring that would be the last oil change they would ever see. That way the car would run at least a year before the engine blew from neglected oil changes.

I have had to deal with this type in my computer business. The people who buy the Wal-Mart computers always have the ones beat to hell, full of roaches, cigarette smoke, urine, etc. You don’t usually find a pristine Wal-Mart computer.


Back in 1967, I was shopping for a second car. We spotted a car we thought we would like on a “Buy Here, Pay Here” lot. We test drove the car and found it was over the hill. Just for fun, I asked the proprietor the cash price of the car. He didn’t want to sell it for cash. He was more interested in making money on the car payment interest. I doubt that much has changed in 50 years.
Some years ago, Consumer Reports published an article titled “Bait the Hook With Merchandise”. The goods sold are unimportant. It’s the interest made that is important.
Back in 1966 when I was first married, a furniture store in a small town offered to sell us the furniture we chose at “90 Days Same as Cash”. I had the money to buy the furniture outright, but the owner thought it might be important to young people starting out to establish credit. We took him up on the offer. The store carried the note and at the end of 90 days, I paid for the furniture and no interest was charged. Some years later, I was buying our first color TV set. That store also offered “90 Days Same as Cash”. I bought the set on those terms. However, this merchant sold the note to a finance company. I received s payment book in the mail a couple of days later and the payment coupons went well beyond 90 days and when I calculated the interest, it was sky high. I immediately took the payment book with the receipt for my TV purchase along with a check for the price I agreed to pay for the TV. It took some arguing to get them to take the cash.
My purchases are always strictly cash.
I was teaching a beginning computer science course and had the students write s program where the input to the program was the purchase price, the down payment, the interest rate and the output was the cost of the loan. Our theoretical purchase was an automobile. The students were shocked when they saw how much a loan cost. One student came to me after class, shook my hand and said writing that program was one of the most valuable things he had ever done. He then joked and said, “Now I understand why you drive an old car”.


I really don’t know what the rates are but I would suspect they are for sure in the 18-25% range. I suspect usury rules, if they still exist, would put a ceiling under 30% anyway. Once you hit the 18% level, it is extremely hard to get out from under the loan though. It’s a trap even though I do understand the need for higher rates to cover a poor risk.

Just this week now our church is starting a personal finance class teaching the Dave Ramsey method. (We’re having a debt free celebration at church too after a hard fund raising event.) I don’t agree with everything Ramsey teaches but I do know his methods have helped many people in other churches.

Of course these type of dealers are the biggest scam on Earth. Many years ago, I was looking for a specific model of used car–a 1991 or 1992 Toyota Tercel with automatic transmission, and one of the ads in the newspaper classified was from a car lot which had one for sale.

They made no bones about the fact that they did not want to sell the car for a “cash price” and that if we could afford to pay the asking price, then we should buy a better car somewhere else. I ended up buying a used Tercel from a Toyota dealer instead.

These businesses are predatory in nature. What is atypical is that their prey comes to them. Making bad financial decisions is far to often a chronic condition.


The same goes for the rent to own and payday loan places. Their prey comes to them.

As for the rent to own, that crap is just cheap junk with a HUGE pricetag! I went in one of those places once and was shocked. It is worn out by the time it is paid for. The same is true when they buy cheap crap at Wal-Mart. They will never get ahead but at least they paid $200 for that cheap crap instead of $2000 for the same junk at a rent to own center. These places do not force people to go in. They are willing. The same is true for casinos and lottery tickets.

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Isn’t that up to the customer? The buyer chooses the vehicle and agrees to the price/finance charges. Why should anyone be concerned about the value that other people are receiving from businesses if they have the freedom to choose to do business with that company? Nobody is held hostage.

There are companies that charge up to $1000 for a telephone on a payment plan and $50 a month to make calls, if a payment is missed they can shut off the service. Do these customers deserve protection from the merchant? Are people with no money entitled to a car and a telephone?

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We’ve been following some of Dave Ramsey’s methods for several years now. I agree that I don’t agree with everything he says… but a lot of it makes sense and is wise.

I heard once about a guy who had a used car lot with about 5 cars. All of them were somewhat outrageously painted (non factory colors, let’s say) with big wheels, that sort of thing. He’d “sell” the cars, and knew that he’d get the cars back through repossession within a few months, Sure enough, it was a cycle, and he’d just rotate those same cars or something similar for his livelihood.

The book, Bad Paper, by Jake Halpern, talks about bad debt and the dirty side of debt collection. He discusses buy here pay here car sales. As others have mentioned the buyers have lousy credit and no one else will sell them a car. The sellers figure they have 75% chance of getting paid, so they mark the cars up at least 25% and charge horrible interest rates on top of that to cover their risk. Ugly side of our society but it serves a certain class of buyers.

$1000.00 down, $199.00 a month for 24 months.

That $1000.00 down you paid was more than the lot paid for the car.

The $199.00 a month for 24 months is pure profit for the lot

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These buy here pay here places are much like payday lenders or pawn shops. They provide a service that is in demand to people who willingly come in and sign on the bottom line.

Some of these folks are good people who’ve fallen on tough times and need a car or some cash or to pawn a valuable. It is a way to get to work, or to fix their car so they can get to work. It annoys me when legislators try and close these places down. I’d rather they visit a payday loan place than a loan shark. I’d rather they work for a living than live off taxpayers.

Some of the customers are people who buy things on credit and don’t intend make their payments. Take the cash and don’t intend on paying it back. At least the pawn shop has collateral for the loan. There are a number of people that game the system by paying $250 for the car and then ignoring every other payment. Their credit is already bad so what the heck? That’s why some of these lots use immobilizers that shut the car down if payment isn’t made. In the past, you’d have to pay a repo man for this. Now it just takes a key-stroke.

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I would suspect there are services that will defeat this. Illegal perhaps, but so what…

Years ago, when I was in the insurance business, one of our insureds hit a car in the rear that was financed through a buy here pay here lot. The adjustor agreed to meet the claimant at the lot. He was not looking forward to it.
The lot owner greeted the claimant by name, and asked if anyone had been hurt, and stated the car wasn’t worth fixing. He asked the adjstor how much he was willing to pay. The amount was $1500 or so. The lot owner said with that as a down payment the claimant could pick any car from the row containing his “best cars” with no increase in weekly payment.
When they were alone the, the adjustor asked how that worked. The lot owner stated that the claimant had been making payments on time for 2 years, and he wasn’t going to lose that cash flow. Everyone was happy.

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I am the group that does not care for Dave Ramsey . He seems to use church groups to just sell his book the same way he uses large meetings to sell his books . At least Suzy Orman said on her show that one way to save money was to check her book out from the library instead of buying it.

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we can all say its a ripoff but until someone says what they actually paid than its all talk.
xxx down. x number of monthly payments equal the full amount? what is the total paid for the car?

Yeah, I have mixed opinions about businesses that service the lower end of society. They definitely seem predatory but would rather have it this way than the taxpayers footing the bill for free telephones and cars. It frustrates me to no end when I deal with a person giving me the “poor me” talk looking for a pity party and they are driving a nicer car and have the latest iPhone.

I service computers for a living and it became pretty obvious early on that this demographic wasn’t exactly going to be my focus. They want their stuff fixed NOW but want to pay it off over a period of time, often several months. That would be fine with me but I would have to charge a lot for the service of accepting many small payments vs. one large one. I am mobile and onsite with my services. The cost in time for me to drive around and collect payments would eat me alive. The other problem is that they don’t want to wait to get their stuff back. They want is ASAP. Again, it isn’t worth it because the majority of them don’t intend to ever pay me back. I did this once early on and it made me nervous. The person actually paid! The next one didn’t and that was the end of that.

I basically came to the conclusion that the only way to make any money of this type would be to seriously overcharge them. Instead I chose to avoid the stress and drama of dealing with them and focus on more affluent customers. I advertise on talk radio and such. One of the stations plays Dave Ramsey.

Someone once told me that I should charge a premium for commercial customers vs. residential customers. I told them that this was the wrong way to do it. The commercial customers pay without a peep while residential customers are the ones that will try to nickel and dime you to death so if anything, I would charge them MORE. Something else I figured out is to never do “fixed bid” jobs. That is because you will get stuck for an entire day doing work that should have taken an hour because the customer insists on repairing junk that needs to be replaced or isn’t ready for me. For example, I spent hours moving furniture once for a job that wasn’t worth it. Had I not driven over an hour one way, I would have turned around and left. I should have done that anyway looking back. They have no incentive to streamline the job on their end so end up wasting a bunch of my time. All jobs are now charged by the hour. I will tell the person within 10 minutes of arriving if their equipment is worth fixing or not. It is up to them to decide to replace or fix it at that point. I had one of these just the other day. I kept telling her this computer was over 10 years old and that it wasn’t worth fixing. She insisted on fixing it. We were about 3 hours in and she asked how it was going. I told her that I was making some progress but the unit was so incredibly slow that she had better make a bed for me that night! It was only like 11AM so at that point she finally got the message. We went to the store and got a replacement unit.

I am sure it is this way with cars as well. People with an old beatup junker don’t want to pay as much as it would cost to service a new car. The problem is that the old car may be a basket case from owner attempted repairs and bolts, etc. are rusted, broken, and such. The old car actually COSTS more to work in in mechanic’s time…

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Dave Ramsey say that, too. I don’t agree with his “no credit cards” philosophy but I understand many people get into trouble with credit cards.