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Private Lending for car loans (Subprime)

by Andrew H
5 replies
I see a couple of these around. You open a little car lot buy some used cars at a decent price ($5000-10k), then do private lending to people that can't get credit from banks. When someone finances a car you keep the title (until vehicle is paid off), and require a 30% deposit. Due to the car buyers credit situation you can charge a little higher interest rate, from my research I think the highest allowed in Canada for this type of lending is 9.9%.

So you invest $60-70k upfront and then have a good stream of income coming in for a couple years on each car. Obviously collections would be an issue with some people, however you own the title and can retain a key for the car as part of the contract - so hiring out the work to a repossession company would be fairly straight forward for people who default.

Would be easy to draw in customers via craigslist: '2005 Nissan Pathfinder - We finance EVERYONE!'. So you wouldn't need too many cars on the lot because people coming would know exactly what they want.

I think the legal paperwork will be the hardest to get the business running, however I really like the idea. Has anyone ever tried something like this?
#car #lending #loans #private #subprime
  • Profile picture of the author BamIPD
    There are also electronic boxes that can be installed in that car that can be triggered to disable the ignition if the customer isn't paying. I'm not 100% sure how it worked, but we used them for our "Buy here pay here" cars when I worked at a dealership.
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    • Profile picture of the author midasmarketing
      This is very common in the US and is referred to as "buy here pay here". I was involved with it for 10 years. It can prove to be very lucrative however, there are many complications. If the cars don't run people don't pay.... A high percentage of your loans will default and often times those people beat the crap out of the car. So having a very good mechanic is a must. You need to have a good mechanical aptitude when buying cars at the auction so you know what kind of units run well and are good for bhph. GPS units can help but you need to check the legality in your area. I just got tired of the business and pia customers....
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  • Profile picture of the author Andrew H
    Ah yes these 'buy here pay here' seem to be very popular in the sates. I did some more research and my initial capital costs were way off. From the articles and business plans I have found it looks like people are stating you need ~1mill to successfully start a business like this.
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  • Profile picture of the author Andrew H
    That would be interesting to get involved as a lender in that market-I could see it actually being moderately profitable if done correctly!
    From my research it can be extremely profitable if done correctly. However, obviously the initial capital costs are very expensive. Well beyond what I had thought initially.
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