Some used car dealers charge sky-high interest rates, then repossess

A look into a dark corner of the used car business finds exhorbinant interest rates and a cycle of sales, repossessions and resales.

In the first of three installments in a series on the Buy Here Pay Here auto dealer industry, Ken Bensinger of the Los Angeles Times found buyers are paying interest rates up to 30% on loans for basic-transportation cars. About one out of four cars end up being repossessed when buyers can't make the payments. So the dealers end up reselling them.

Knowing this cycle is likely to keep repeating, dealers are sometimes selling cars with GPS tracking devices and remote disabling devices already built into them to make life easier for the repo agents.

The Times puts the cycle this way:

In a kind of financial alchemy, they have found a way to turn clunkers into cash cows and make money off the least creditworthy customers: the millions of Americans who are stuck in low-paying jobs, saddled with debt and unable to qualify for conventional auto loans.

For most of those people, having a car is the only way to stay employed, and they'll accept almost any terms to get one.

It's big business:

Buy Here Pay Here lots sold nearly 2.4 million cars nationwide last year, up from 1.3 million a decade ago, according to CNW Marketing Research. And their industry association says profit margins are nearly 40%, twice what conventional auto dealers get.

Bensinger tracks one California buyer who was paying nearly 21% on a loan for 2007 Ford Fusion. When she fell behind on her payments, she returned to the dealer for what she expected would be negotiation for a new deal. Instead, her car was repossessed on the spot.