Fintech Aims to Ease Anxiety of Used-Car Transactions

Buying a used car can be an anxiety-inducing experience for the buyer and, in private-party transactions, the seller as well. For the buyer, worries include whether the seller has title to the vehicle and whether there are outstanding tickets. On the seller side, is the buyer’s identity real and credit good?  

Fintech startup Caramel has a platform it claims will alleviate buyer and seller concerns in a vehicle transaction and sell some F&I products. The technology can help franchised and independent dealers boost sales.

“In the U.S., folks are still transacting in very antiquated ways,” Caramel co-founder and co-CEO Ed Brojerdi tells Wards. “Our approach is, we are attempting to protect both parties and form a seamless experience the allows them to (conduct the used-vehicle transaction) on their phones,”

He calls Caramel “the Apple Pay or PayPal” of digital payment solutions for the used-car sector.

Caramel created its platform to facilitate private-party transactions, and it works with independent dealers.

But the technology can help franchised dealers expedite a used-vehicle sale to an out-of-state or off-premises customer by handling the DMV registration, sale paperwork and loan with “effectively no effort” on the dealer’s part, says Brojerdi.

“Because Caramel is structured as a dealer, (the dealers) refer the customer to us and wipe their hands clean of the sale,” he says. “This can be particularly useful for one to two used-car sales per month for a franchised store, which is meaningful.”   

Caramel already has several hundred independent dealers as clients and sees much growth potential in that market, says Caramel co-founder  and co-CEO Craig Nehamen.

“There is a lot of runway to go (with independents),” he says. “We can constantly build that market.”

The used market is significant. Franchised dealers sold close to 12.9 million used vehicles in 2022, according to ADESA Analytical Services, based on NADA data.

Independent dealerships sold more than 12.6 million vehicles, and there were more than 10.3 million private-party used vehicle transactions in the U.S. last year.  

Caramel’s platform works like this: A buyer or seller starts a sale by setting a price. Once a price is agreed upon, Caramel buys the car from the seller, paying off any loan. It then verifies the title and vehicle before the buyer signs and buys the car from Caramel.

“Without Caramel, it is really hard to know if the seller is really the clear owner of the title,” says Nehamen. “We have really robust fraud checks we run around the buyer and seller to ensure they are who they say they are.”

The buyer’s funds are transferred to Caramel, and the seller gets 50% when Caramel receives the correct title. “We play the role of a secure escrow company that releases the funds when they should be released,” says Nehamen.

The remaining 50% is paid when the car is picked up. The buyer receives a temporary driving registration while Caramel handles the title transfer and permanent registration with any state’s Department of Motor Vehicles. “We can handle any vehicle, any year, any state,” says Brojerdi.  

Caramel has no listings on its site or plans to have any. “There are so many sites to list cars. They all seem to be missing that last transaction piece,” says Nehamen.

Founded in 2021, Caramel is “well-capitalized for the time being,” says Brojerdi. The payment platform launched in March and is seeing up to 50 offers daily, says Nehamen.

 For the seller, Caramel’s value lies in having access to a transparent and secure platform that handles all title transfers and verifies the buyer’s credit, they say. Caramel handles title and registration for the buyer and ensures the funds don’t go to the seller until the proper time.

It also offers access to financing and vehicle protection products, says Nehamen. “We can’t guarantee the condition of the vehicle, but we can (sell) you a vehicle service contract,” he says.

The service contract can be bought at “an affordable rate” during the purchase, says Nehamen. 

For financing, Caramel works with several financial institutions, including Westlake Financial Services, which services credit-challenged customers, among others.

“We have a lot of prime customers, and also near-prime and (those with) troubled credit,” says Nehamen, who worked for Westlake in the past. “Everyone has a way to go.”

Zurich is Caramel’s primary provider of F&I products. Caramel is a registered used-car dealer and adheres to the same level of compliance and red flag checks as larger dealers, says Nehamen.

Fees from selling F&I products is Caramel’s main source of income, though it does charge a $95 fee to buyers and to a seller if the seller’s car has a loan or they don’t possess the title. The fee covers administrative costs to satisfy those issues.

There is a real need for a secure transaction platform such as Caramel’s, says Eric Lyman, co-founder of consulting and advisory firm Remarkit.

“If you talk to anyone who has ever bought or sold (to a) private party, there is tremendous potential to improve the process,” says Lyman, who previously worked at ALG and TrueCar. “There is so much uncertainty and anxiety that surrounds private-party transactions.

Selling F&I products also has huge potential, he says. “If you talk to any dealer, that is where potential profitability in a deal comes from.”

The platform could also be used on marketplaces such as Craigslist and eBay, says Lyman. “It eases friction of a transaction on an existing platform,” he says.

Caramel’s founders also see the technology’s potential as a sort of white label product. They can’t discuss details but, “our technology will be utilized by larger marketplaces and listing sites including auctions,” they say.