You might think that used car finance simple involves a dealer, a bank or other lender, and a down payment on the part of the buyer. That is how it works in some cases, but it gets much more creative than that. Let’s look at a real life example, and see what lessons can be learned to apply to making money in other businesses.

A friend of mine used to have a used car lot. He teamed up with a creative used car finance company to sell cars to people who had trouble getting traditional loans. I don’t recall the name of the company, and I may get a few figures wrong, but I remember the principles very clearly.

A typical deal might have started with the dealer taking a trip to the auction. He would buy a car there for $1,200 (wholesale) which might have had a retail value of about $2,200. But because he is making it easy for somebody to buy the car, he can sell it for perhaps $3,000 after cleaning it up.
How does he make it easy to sell at a high price? By arranging financing for the buyer, who typically cannot get a bank loan. How does he do that? With a very creative finance company that rarely refuses to make a loan.

How can they make loans to people who are a terrible credit risk? By putting much of the risk onto the dealer and charging outrageous interest rates. Specifically, in this case, they would finance the $3,000 car at say 20% annual interest. But they also would only forward half of the loan amount to the dealer. The rest would be paid only when and if the payments from the buyer came in.

In this example, then, the buyer might have to pay a $600 down payment. A young couple can put together a couple paychecks to afford this. Payments on the $2,400 loan arranged by the dealer might be $200 per month. As I recall, weekly payment plans might have been available as well, to make budgeting easier for those with weekly or biweekly paychecks.

The loan would be for $2,400, but the dealer would get $1,200 when the sale was made - half of the loan amount. As you can see, the dealer is already okay, since he has received a total of $1,800 for a car that cost him $1,200. In other words, if he receives nothing more he may be able to squeeze a profit from these deals even after overhead costs.

What about the used car finance company? So far they have only risked $1,200, on a car which is worth that much at a wholesale auction. They collect 20% interest on the entire $2,400 however, as well as some kind of “loan processing fee” up front. This makes their real rate of return over 40% annually.

Of course, these are high-risk loans. I heard through the grape vine that 50% of these loans were in default at some point. But the finance company had an aggressive collection team, which called borrowers as soon as they were a week late, and quickly repossessed cars when necessary.

What does that mean? As an example, suppose a buyer ran into trouble and stopped paying after the first eight payments of $200. The principle amounts had been forwarded to the dealer, but the lender would have already collected about $400 in interest and fees. When they took the car and sold it for $1,100, they might net $800 after the repossession fee and other costs. In other words, they broke even on the deal. When you make a 40% return on the good deals, you can break even on a lot of the others, right?

Used Car Finance Lessons

One dealer who had used this finance company was still receiving checks for principle years after he retired, so he liked the arrangement. Despite the high interest rate, the buyers now had a car to get to work in, so they liked the deal, or at least found it better than all other options. The owners of the used car finance company were happy making money where nobody else dared to loan. It was very creative all around, so what specific lesson can we learn to apply when making money in other businesses? Here are three:

1. High-markup products allow for more creativity in marketing and selling.

2. Making it easy to buy allows you to charge more for your product (or service).

3. Finding a way for everyone involved to “win” helps you make money.

There are other lessons in this story of used car finance, of course. For example, in the case of the lender you can see that going where others fear to go opens up new opportunities. Sharing the risk is also a useful way to make things possible that otherwise might not be. Of course, the buyers out there might see the lesson that you pay a lot more when you finance things, and especially when you have bad credit.

Buying used luxury cars is such an emotional process that it’s often difficult to separate what you want from what is best. This phenomenon results from the human mind’s tendency to make a decision and then seek out facts to strengthen and justify that decision, rather than look at things objectively.

When it comes to buying used luxury cars, you’ll not only want to choose one that looks and feels great, but one that also makes financial sense now and in the long run. Using this step by step guide to buying used luxury cars, you can feel good about the fact that you’ve run your decision though an appropriate ‘checks and balances’ process.

Organize your requirements

The BMW roadster is hot, but will it suit your family’s needs? Is safety more important than a sportier look? How much of a monthly payment can you honestly afford? Even if you do think you know what you want before entering the car lot, the sea of beautiful curves and luscious interiors of all the different types of used luxury cars can easily convince you that you need something different. Be sure to write down your needs first so that you can revert to them later. Maybe you will decide on something completely different-you don’t want to take all of the fun out of the buying process. But by keeping this list as a guidepost, you can avoid the “what was I thinking?” feeling later.
Research car makers

Most people have a general idea about what brand of used luxury cars they like based on they way they look on the road. Before limiting your search, conduct some research on the auto maker before you become sold on any one in particular. Which auto maker has had the least number of recalls on their cars over the last 10 years? What types of awards has each auto maker won? If safety is your biggest concern, look for car makers that consistently win safety awards such as Volvo.

Find out what owners are saying

One of the largest benefits of buying used luxury cars is that you have the opportunity to find out what real people are saying about the year model that you’re considering. Typically, the first year of a new model has more problems than subsequent years of that same model. You don’t want to buy a certain year and model only to find out that thousands of owners complained about the noisy brakes or the uncomfortable seats when all of that information was available online. Even the most well-intentioned sales people don’t know the intricacies of a used luxury cars year, make, and model like the owner does.

Get the fax

Once you narrow down your selection from the many used luxury cars available to the one you’re interested in, always get a Carfax vehicle history report. If possible, get the maintenance history reports as well to ensure that the car received proper oil changes and maintenance from its previous owner. If you find anything that indicates poor care, you may want to reconsider and choose another vehicle of the same year, make and model.

Buying a used vehicle makes a lot of sense today. Today’s vehicles, especially the luxury lines, maintain their performance more now than ever before. The key to choosing used vehicles is to find a knowledgeable dealership that you trust, that has made a commitment to only choosing the best value used luxury cars for their lot. This, along with research and planning, can help you choose a vehicle that will bring you happiness for many years to come.

These days cars a lasting much longer than they used to do with so many people cutting back on finances many families are considering buying a used car.

Smart consumers know that buying a used car can be a much better deal than buying a new one if you know what you are doing.

Here are some tips that you can use to make sure you get the most out of your used car purchase.

1. Due Diligence

When you make any major purchase, it’s Important for you to do some research and purchasing a used car is no different. If you do the right research you’ll know the perfect make and model that suits your needs. You’ll also be able to determine the fair market value of this type of car and therefore, you’ll know when you’re getting a good deal at the used car lot.

In addition you’ll be able to research Important details about the car, like recalls her things to look for and used models that may help when evaluating used cars and negotiating deals.

2. Check Out The Car

when you find a car that you like, it is wise to check the car’s history. This will give you Information regarding the repairs as well as any problems with the car. You can do this for a small fee online and it can save you from buying a car that’s been in a flood or other major disaster. You won’t want to buy a car that’s been a major accident that could’ve damaged or bent the frame and it may be impossible to tell by just looking at the car so checking on the history is vital. You can find out the history of any car by going to Carfax.com.

3. Think Safety

In order to keep your family safe in the car, you want to consider the safety features of any used car you going to buy. Obviously, the newer model cars will have more safety features. According to reports, 80% of traffic accidents are made worse because the cars lacked safety features.

4. Check the Documentation

You should check out the documents included with the used car cheerfully. Make sure that the cars are not stolen or that there were no liens on the vehicle and also be sure to check that the signature on the bill of sale is the actual possessor of the car.

5. Car Inspection

Before you make any deals on the used car, you must inspect the entire car. Look for Ross to especially around the wheel wells in the frame and carefully scrutinize it for any damage. Don’t forget to check the tires, and the interior as well. If you don’t know much about cars, you can always asked to take it to your mechanic for inspection. Anybody on the up and up selling a car should not object to this. If any flaws are found, and then you can use this as negotiating leverage and lost the flaws are so major that you no longer want the car.

Buying a used car can take a bit more work than buying a new one as there are many things to check out. However, doing your due diligence will make sure that you get a great used-car at a fraction of the cost you could buy new one for and that will last for years to come.