CarMax Auto Finance - A Complete Review
Updated: 5 days ago
Trying to log into your CarMax Auto Finance account to reach customer service, make a payment, find out your due date or obtain your payoff amount? About to get a CarMax Auto Finance loan and trying to find out your interest rate and terms? Or just looking for reviews and hoping to learn more?
You're at the right place! This article is going to answer your questions and provide a lot more context around CarMax Auto Finance (also known as CAF):
Background about CarMax Auto Finance
CarMax is the nation's largest used car dealer measured in number of cars sold and headquartered in Richmond, Virginia. The company was born within the electronics retailer Circuit City in 1993. Experian estimates that 85.4% of new passenger vehicles and 55.5% of used vehicles are financed. Hence to be competitive, CarMax was forced to find ways to help its customers finance their purchases and provide financing across the whole credit spectrum.
As we described in our article about the best auto loan companies to refinance, there are four different lender types:
Banks & Credit Unions
Captive Finance Companies
Speciality Financing Companies
Buy Here Pay Here (BHPH) dealers
CarMax Auto Finance's company name doesn't immediately reveal on which credit segment CAF specializes. To serve every possible customer, CarMax had to innovate and find ways to partner with lenders specialized on each of the credit tiers.
Credit tiers CarMax Auto Finance serves
In the auto loan market, we distinguish between five different credit tiers:
Super Prime credit (Fico 781 - 850)
Car shoppers with exceptional credit will get the best rates at Credit Unions. Credit Unions are non-profit organizations with a community charter. Rates are usually far below 10%. Customers with super prime credit always know that they can get a really low rate and often just demand to be working with a Credit Union when buying a car at CarMax.
Prime credit (661 - 780)
Customers with prime credit usually work with commercial banks such as Bank of America, Wells Fargo, Chase, Ally Financial, CapitalOne etc. This auto loan segment is very well understood by traditional banks, who usually pay auto dealers high referral fees to get customers. CarMax partners with all of these lenders and has maintained good relationships over many years.
Non Prime credit (601 - 660)
When working with car buyers who have slightly challenged credit, auto dealers need to partner closely with lenders who are specialized on auto loans. In that credit segment, lenders need to understand the customer's budget as well as the vehicle they're buying very well. The lenders need to make sure that customers don't accidentally buy cars that either have too high of a monthly payment or depreciate quickly.
Sub Prime credit (501 - 600)
We distinguish between behaviorally sub prime customers and situationally sub prime customers. Behaviorally sub prime customers usually haven't received financial literacy training and therefore often just don't understand in detail how credit works leading to missed payments and defaults. Situationally sub prime customers, in contrast, used to have prime credit but had an emergency, medical bills, a divorce or medical bills which lead to these customers missing payments. Since close to 50% of sub prime loans are at risk of not being paid, lenders who work in the sub prime credit segment need to be closely integrated with the used car dealer.
Deep Sub Prime (300 - 500)
In the very challenged credit segment, only lenders who are very tightly linked to / vertically integrated with car dealers are able and willing to provide loans. Usually, more than 50% of loans in the deep sub prime credit segment default and therefore lenders need to have very labor-intensive loan servicing, collections and repossession departments. To maximize the recovery rates, lenders typically require dealers to ask used car shoppers for consent to install GPS devices in the vehicles.
When CarMax sends a loan to a partner lender, CarMax usually receives a referral fee. However, if the customer is in the Sub Prime or Deep Sup Prime segment, CarMax typically pays lenders to take the loan. CarMax Auto Finance's originator, sponsor and servicer is called CarMax Business Services, LLC.
How CarMax Auto Finance for used cars works
As described above, we identified five different credit tiers in the used car market:
The Super Prime credit tier gets their auto loans from Credit Unions.
The Prime credit tier gets their auto loans from commercial banks.
The Non Prime credit tier usually works with Speciality Finance companies.
The Sub and Deep Sub Prime tiers require lenders to be closely linked / integrated with the car dealer.
In recent articles, CreditKarma and Interest.com write about CarMax Auto Finance but either provide misleading or incorrect content. CarMax Auto Finance is not CarMax's umbrella for financing options. Instead, think of CarMax Auto Finance as CarMax's own lender. CarMax Auto Finance is closely linked / integrated with CarMax and is therefore able to also lend to car shoppers with challenged credit.
Veterans in the industry therefore also describe CarMax as a big Buy Here Pay Here (BHPH) dealership. However, as we describe further down in this article, CarMax Auto Finance follows an interesting strategy and its important for car shoppers to understand that because car owners with CarMax Auto Finance loans are overpaying on their car loan interest rates.
Some Background on CarMax Auto Finance
Getting a loan through CarMax Auto Finance is a simple process:
Submit your application to get pre-approved at https://www.carmax.com/financing/prequal
CarMax's pre-approval financing decisions are available within 20 minutes and vary based on your credit score.
You can adjust your down-payment as well as the term of the loan, from 36 to 72 months.
You can add a co-buyer or co-owner to lower your rate or add your spouse to your CAF loan.
If you don't have cash on hand, you can use your existing trade as your down-payment.
The 'three-day payoff program' allows you to shop your rate for three business days even after you left the CarMax lot.
You can make payments by check, online (at https://www.carmax.com/mycarmax) or through Western Union and MoneyGram.
If you need to reach customer service, dial this phone number (800) 925-3612. You can mail your monthly payments check to:
CarMax Auto Finance P.O. Box 6045 Carol Stream, IL 60197-6045 If you're paying off your CarMax Auto Finance loan, make sure to send the payoff check by USPS to:
CarMax Auto Finance Attn: Payoff Department P.O. Box 440609 Kennesaw, GA 30160
Should you choose to FedEx or overnight your payoff check, you can't use the P.O. Box address but need to use the following physical mail address instead:
CarMax Auto Finance Attn: Payoff Department 225 Chastain Meadows Court Suite 210 Kennesaw, GA 30144
To locate the nearest Western Union location, check: https://www.westernunion.com/us/en/agent-locator.html.
For more details and FAQs, check out https://www.carmax.com/car-financing/carmax-auto-finance. If you're asking yourself how to refinance your carmax auto loan, we've got that covered in our own FAQs.
As you can imagine, CarMax Auto Finance jobs are very different from a CarMax store sales consultant role. CarMax Auto Finance jobs are one of the following:
Data science and finance, to monitor how the loan portfolios perform
Customer service, for questions around payments, payoffs, account numbers and other loan terms
Loan servicing, which includes collection and recovery
CarMax Auto Finance - How it Really Works
When looking into the actual CarMax Auto Finance loan portfolio, you'll make an interesting observation: the most recent loan portfolios originated my CAF have an average FICO score of 715, i.e. Prime Credit car buyers. One third of CarMax Auto Finance loans are Non Prime, one third Prime and the last third Super Prime:
That observation is surprising because we would've expected CarMax to send Prime and Super Prime borrowers to commercial banks and Credit Unions, respectively. Both charts are based on 74,000 auto loans from a recent CarMax loan portfolio securitization. The chart below shows the median rate by credit score (green horizontal line), the 25% and 75% percentile (the lower and upper and of the box) and the interest rate range:
Three particularly interesting observations from CarMax's auto loan portfolio:
If your credit score is e.g. 650, your rate could be as low as 2.5% or as high as 17%.
CarMax's rates are based on 0.25% steps, e.g. 2% or 2.25% or 2.5% or 2.75% or 3%.
Rates drop most when you improve your credit from 675 to 700. You go from 8.5% to 7%, which can happen in a matter of a few months!
The best way to lower your payments is through making your payments in full and on time. If you start with a 600 credit score, your rate would be 11.5%. If you subsequently make 6 / 12 / 18 payments and improve your score to 700, your CarMax Auto Finance rate would be 8.5% if you were to purchase another vehicle. Therefore, we recommend refinancing your CarMax auto finance loan.
We couldn't find any comprehensible logic that describes how CarMax chooses auto loan companies for its customers. We're therefore tempted to argue that CarMax Auto Finance cherry picks customers, i.e.:
Customers who have a decent to great FICO and a very high likelihood to make their payments go to CarMax Auto Finance.
Customers who have a decent to great FICO but don't look like they have as high of a likelihood to make their payments go to CarMax's partners.
When we write CarMax Auto Finance 'gives a loan', what really happens is slightly more complex though and important to understand:
CarMax Auto Finance borrows money from institutional lenders through a so called warehouse debt facility.
When a customer gets a CarMax Auto Finance loan, CAF uses the warehouse debt to pay CarMax for the car.
Once CarMax Auto Finance has accumulated a big portfolio of $250M+ in auto loans - currently financed by the warehouse debt facility - CAF sells the portfolio through a securitization. A Securitization is a public offering and allows public investors to invest money in the auto loan portfolio originated through the various CarMax locations.
Out of all the auto loans CarMax Auto Finance gives to customers, 18% are in California, 11% in Texas, 9% in Florida, 7% in Georgia and 6% in Virginia.
Carmax Auto Finance - Reviews and Competitiveness
Even in the CarMax securitization prospectus, we couldn't find any clarifying information about how CarMax decides which loans go to its partners versus CarMax Auto Finance. That lack of clarity and visibility is suspicious.
In our research we found that CarMax Auto Finance charges an average interest rate of 8% - 9%. These interest rates seem very high when looking at the average FICO of CAF's loan portfolio of 715. Through the securitization described above, CarMax manages to find public investors who are fine with receiving 2% on their investment. 2% is barely above the rate on Treasury Bills!
These findings provide more clarity on CarMax's strategy:
CarMax uses CarMax Auto Finance for 40% of its customers.
CAF charges customers 8% - 9% interest and then finds investors who are fine with 2%.
During this process, CarMax Auto Finance pockets 6% - 7%.
6% - 7% equals $1,225 - $1,430 per year (!) on an average vehicle selling price of $20,418.
Here's what's happening in a nutshell:
CarMax is a great channel to originate loans because more than 700,000 car shoppers buy cars from CarMax every year.
When a customer falls in love with a car, the sales consultant at the CarMax store introduces financing.
If you have Prime Credit, there's a 40% chance that CarMax will present CarMax Auto Finance as your lender.
CarMax will present all of CAF's 'benefits' ranging from convenience to a 'three-day payoff program', should you want to switch your lender within three business days of your purchase.
However, who really goes through the effort of changing a lender right after purchasing a car? Refinancing and/or finding a lender for your car has always been a cumbersome process and therefore, CarMax knows that you're very unlikely to make a change once you drive off the lot.
Consequently, CarMax makes significantly more than $1,225 - $1,430 on your CarMax Auto Finance loan by taking advantage of its strong presence, by considering that you can't effectively compare rates while in the store and by knowing that you're very unlikely to change your loan after you drive off from the CarMax store in your new car.
These observations are in line with our earlier articles in which we describe how car dealers make their money and how you can get thousands back.
CarMax Auto Finance - Getting a Better Rate
Thankfully, the times were car shoppers are stuck in high interest car loans are gone. WithClutch.com is a fully digital platform that lets car owners like you refinance their CarMax Auto Finance loan from the comfort of their own home.
Find out from our FAQs how to refinance your CarMax Auto Finance loan: no need to set a foot in a bank or credit union. You can lower your rate or get cash in as little as 20 seconds.
Follow three simple steps to refinance your auto loan, get approved in seconds and save thousands in minutes.