July 21, 2018


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Low-income car buyers often end up paying more—as much as two to three times more—for the exact same vehicle than buyers in more favorable financial situations who have a stable job and healthy credit. Cash or credit, it doesn’t matter. This is a brutal reality that used-car dealers see every day.

The reason has less to do with the specific cars involved and far more to do with all the unpredictable events that can happen in between. One example in this author’s recent past provides a perfect case: One cash-strapped buyer ended up paying a total of $11,835 to finance a seven-year-old Mercury Grand Marquis, as proved by the bill of sale and an unfortunate repair estimate found in the glovebox when the car was bought at a dealer auction.

The original price that the buyer paid was only about $5500, but the bill of sale showed that the buyer only put down a small amount of money—presumably because he couldn’t afford to pay more—and financed the rest over several years. The final financed deal added up to more than double the price for a car that, in this particular case, the customer didn’t even get to keep. That’s right; a subsequent transmission failure was quickly followed by repossession once the owner couldn’t afford to fix the car—why continue payments on a car he couldn’t use? Only 5000 miles later, I purchased the vehicle at a dealer auction for just under $2300. One $700 transmission replacement later, and I had a loaded Grand Marquis with only 42,000 miles on it for $3000.

Repair Bills Sink Those with Shallow Savings

A recent AAA survey found that a third of U.S. drivers reported they do not have cash on hand to pay an unexpected repair bill. Those in more comfortable situations can shop around for high-quality replacement parts and repairs. However, those who rely on cars and trucks as their sole means of transportation and live paycheck to paycheck don’t have the same luxury of time.

Indeed, for car owners who don’t have a nest egg or even a savings account, the option to get a second opinion can range from costly to impossible. When you’re looking at a $3000 repair bill and only have a few hundred dollars (or less) to your name, you’re more likely to attempt to move on to a different, more functional vehicle. And when you’re strapped for cash and desperate for a used car that you need immediately, you’re more than likely going to focus on three simple things:

  • The down payment
  • The monthly payment
  • The age and mileage of the vehicle

Many of the buy-here, pay-here lots that specialize in this risky market typically charge interest rates that are well north of 20 percent to balance out the risks and catastrophic failures that come with financing cars to people with weak or shaky financial histories.

It seems like highway robbery—and it can certainly be done with predatory intentions—but those with lower or unsteady incomes and who lack good credit have an elevated risk of default. When your income is low and your savings are meager, anything from a medical emergency to a four-figure car-repair bill can easily pull you under. That leads to another unpublicized reality: limited access to cheap cars that are reliable. 

No Access to Low Wholesale Prices

What about getting a cheap ride like that Mercury at a wholesale dealer auction? Tough luck; you’re not invited. You may know plenty about cars and feel like you could easily purchase a reliable (or easily repaired) vehicle from a wholesale market, but your knowledge and expertise don’t matter because state laws are specifically designed to keep retail consumers away. To make matters worse, there’s another pesky issue: the stiff markup that the retail customer pays. This spread is now in the thousands of dollars, and according to one industry study, the difference between wholesale and retail prices on used cars was roughly 35 percent in 2015.

It’s easier to own a cheap car when you have a financial cushion because you can quickly handle many small mechanical issues before they become big mechanical issues. But if you’re not as well off and have just one car that must stay on the road no matter what, you can easily become a perpetual debtor with a mediocre car instead of a long-term owner of a great car. In a country with more than 260 million vehicles on the road, this seems like a problem that could be solved. But until alternative modes of transportation—be it ride sharing, mass transit, or a fleet of autonomous vehicles at our beck and call—become cheap and common enough to help those caught in this money trap, the U.S. marketplace will still be full of cheap cars that end up costing way too much.

Steve Lang has been an auto auctioneer, car dealer, and part owner of an auto auction for nearly two decades.


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