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I'm not an expert in the auto lending field on the small (or large) delaer level (our institution has similar rules about max loan amount vs vehicle age as what you've already stated), but the way I've seen it work, many small dealerships get licensed to lend (at a god awful rate mind you) for their own vehicles, keeping the title as collateral. What we see after that point (usually) is the lender either keeping the loan at the high rate for the life of the loan, or (not as often) selling the loan to a larger lending entity/institution. We don't see as much of the later because, honestly, its a hard thing to sell. Profit is high because of the rate, but so is the risk (default - usually people getting these kinds of loans have less than A+ credit, value of collateral -car- dramatically dropping, etc). In this particular situation, I would definately agree with you in that a bank wouldn't finance the loan on an older car like that - even with his $4K contribution, and even if he went to a small dealer that could do the lending, the rate would make the purchase less than worth his while.
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