Would you ever finance your car to a stranger for $500 bucks?
Before you say, "Hell yeah! What a great deal! Give them my keys!", let me offer you a few words of caution.
About a third of these deals go south. Not South as in Alabama. But south as in, "This car is now worth more dead than alive. Who the hell in God's green Earth uses 17 air fresheners and then leaves a pile of leftover half-eaten Mickey D's in the back! "
The average default car at a buy-here pay-here lot usually lasts about 22 months before it's repossessed according to the National Independent Automotive Dealers Association. Given that a large bulk of these deals are designed to last two years, that's pretty bad timing for the owner, but damn good for the dealership.
There is a nice thick silver lining with plenty of gold trimmings on top of that. First, you can sell that car again. Second, most Americans are still incredibly bad at math and third, the average deal that goes south still gets over 76% of the initial finance proceeds before the car is put back on the road again.
It's not all gravy. The Buy-Here Pay-Here business still has profit margins that are far lower than other legalized land sharking operations such as check cashing, title lending, and conventional banking in today's 'too big to fail' economy. Local revenue generating operations from cities that operate speed traps are also far more profitable. Keep that in mind when you're shopping for a used car with a low down payment.