More and more people are using the internet to buy a used car through national companies such as Carvana; however car ecommerce can be fraught with risk.
The internet is a great alternative to the hassle of walking all over car lots comparing colors and features. I used the internet to purchase my last four vehicles, but I did not buy the cars over the internet.
The pandemic really put Carvana on the map. The company came up with the gimmick of having 75 “car vending machines” across the nation.
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A Carvana automobile can be purchased directly over the web, then the buyer receives a “coin” to operate the vending machine. That works for people who may live near a vending machine, but not so much for those who live far away. Delivery fees can run into the thousands of dollars.
While Carvana offers a seven-day, money back guarantee and a 100-day limited warranty, a good chunk of the cars they sell come from auctions.
Generally speaking, when you trade a dealer, they take the car and resell it. However, if they do not feel they can flip the car quickly, they will send it off to auction. I have bought two auction cars in the past, and they both turned out to be lemons.
Auction cars are mostly cars that dealers do not want for one reason or another.
Those who buy a car sight-unseen and discover the vehicle to not be what they thought it would be must then go through the long process of returning the car long distance and starting over from scratch.
Also, should the car need warranty repairs, the buyer must travel or have the vehicle towed to a “preferred facility.”
One of the conveniences offered by Carvana is the “no haggling” buying experience. Carvana sets the price and there is no negotiation.
However, sometimes haggling is a good thing. Your local car salesman is not an order taker, but a commission earner. That person wants to help you find the right car and will do what it takes, within reason, to see you drive off the lot in the car in one sold by the dealership at a good price.
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Carvana has also been accused of some slimy business practices, according . Four states, Texas, Pennsylvania, Illinois and Michigan have investigated the company for selling cars with no clear title. In most states, this is an illegal practice.
Also, industry watchers warn that Carvana’s loan practices could cause shockwaves like what happened in the real estate industry in 2008.
Like so-called “buy here pay here” car lots, Carvana offers subprime loans, that is loans to people with wretchedly low credit scores. Those loans are profitable because they have extremely high interest rates, but they come with a ton of risk.
Unlike the “buy here pay here” lots, Carvana bundles the loans with low-risk loans and then sells them to a third party. If the high-risk loans default, the new lien holder has very little ability to repossess the vehicle.
The bottom line is that you should never buy a car sight-unseen. Instead, use the internet to find the make and model of vehicles you are interested in and then make that trip to the local dealer. You will almost always get a better deal.
Not only does buying local come with far less risk you are also spending your money in your community and contributing to the local economy.
Scott Hudson is the senior reporter for The Augusta Press. Reach him at scott@theaugustapress.com
