Owner Financing - What's fair for interest?

Kalindras

Kalindras

Joined
Aug 24, 1999
Messages
933
Howdy, all...about to explore some undiscovered country (for me, anyway) and thought I'd approach the sounding board out here at BFC for its accumulated, er, wisdom.

I'm selling a car in TX and have been approached by a couple of folks who are interested in the possibility of owner financing. Now, at least one of these folks is a tad on the shady side, but at least one of them seems like good people (willing to give references, lives locally, works for the county, etc.). The question I have is, having never even THOUGHT about doing owner finance, what's a fair interest rate? I'm giving just over 5% for my car, but I figure if they thought they could get that, they'd be going through a bank.

Also, the whole process seems a little daunting. I mean, there's the contract, trying to keep track of the whole thing until it's paid off, and the ever-present possibility of someone running with the vehicle before it's paid off, on the theory that it'd be more expense and grief than it's worth to hunt them down and repo...

Gad, is it any wonder WHY I've never done this?!? So, what, go to a lawyer? Any helpful web resources that I should look at? I want to be fair, but I also want to be safe, and I'd like to turn a little coin out of this whole affair.

As always, thanks in advance for any guidance you can muster up. :confused:
 
My advice: just don't. You're not in the lending business. You don't have the infrastructure to do it. You really don't want to be carrying debt for someone you don't know and who is unable to get a loan elsewhere for whatever reason.

Remind the other party that a private loan does not benefit them on their credit score because you don't have the facilities to report it and, therefore, assuming that they do intend to make all payments on-time, they should go to a regular creditor so that it will be reported and will benefit them that way.
 
Regular creditors determine interest by risk. They examine the would-be borrower's credit report, employment history, etc. They factor in such things as the nature of the security of the loan, etc. You can't get a credit report for them, so you must assume a maximally-bad score. You can't investigate their employment history; you haven't got the staff for that. So, you must assume the worst. There's no security for the loan. It's maximum risk all around. If you are going to take on maximum risk, then you should be rewarded with MAXIMUM interest. I'd offer 120%/year, myself.
 
Worst case scenario they can't pay ,you re-take possession of a now real piece of crap,they get off scott free with not so much as a ding in their credit profile????sounds like a deal from hell, no matter how nice they seem
 
nothing good can come from this

if they can't get a bank loan, you better give them 'loan shark' rates with a hefty sum down
how much money are we talking about?
1k is one thing, 10k is another matter
 
One is shady & the other works for the county?
Nancy Reagan had it right in one -- "Just Say NO"
If they could get better terms than 12% from the bank they would go that route - since they cannot, there must be a reason.
Unless you can afford to lose the car and the price of the car, don't do owner financing.
 
1066vik said:
Unless you can afford to lose the car and the price of the car, don't do owner financing.
Click to expand...

That's some solid advice right there. A finance company can afford to take a few risky deals because they spread their risk out among hundreds of paying customers. In your case all your eggs would be in one shady basket. I might consider owner financing on a piece of land where they can't run off with it or drive it into a pond, but never on a mobile and fragile thing like a car.
 
I would follow Gollnick's advice here. Don't do it. Everything he said is pretty much right on.
 
This has disaster written all over it. I would trade it into a dealer and take a loss before I would take on this kind of risk and headache...

I know a couple people that sold cars to supposed friends, and both ended up getting screwed. One never got a payment and got the pickup back in bad condition. The other was just a few weeks ago. He got three payments, and the guy called and told him he had rolled the pickup out in the desert, and he didn't want it anymore.
 
elkins45 said:
That's some solid advice right there. A finance company can afford to take a few risky deals because they spread their risk out among hundreds of paying customers. In your case all your eggs would be in one shady basket. I might consider owner financing on a piece of land where they can't run off with it or drive it into a pond, but never on a mobile and fragile thing like a car.
Click to expand...

-this is spot on
 
Is it possible to get insurance to cover the sale? If you can get the premium in cash off the buyer before handing over the keys, you should be fairly safe.
One way to take the payments is in the form of a series of post-dated cheques, handed over at the time of the sale. You can phone or text the buyer a few days before each one falls due to remind them to have cleared funds in the account.
 
YOW!! Well, it looks like the overwhelming feeling here is to avoid this like the Plague. My wife and I were sorta leaning this way, anyway, after some discussion, but between the opinions out here and talking to a couple of legal-beagles in town, the risks on this FAR outweigh the potential. I want to sell the car, but I don't want or need it lingering around for months or years, either. Nope, a clean break is what's needed here. If they can't put up the cash, they don't need the car. Thanks, guys!
 
You must log in or register to reply here.
Back
Top