The process of buying a used car isn't fun. Carvana (NYSE: CVNA) was founded in 2012 to fix that problem. The company's convenient delivery services removed pain points and reduced friction, proving extremely popular over the past few years. Carvana sold over 100,000 retail units in each of the past six quarters, doubling its pre-pandemic sales rate.

Warren Buffett once said, "You don't find out who's been swimming naked until the tide goes out." When interest rates were low and demand for used cars was strong, Carvana enjoyed exceptional growth. The company never managed to turn a profit, although it was easy to chalk that up to "investing in growth" or some other thing that money-losing companies tend to say.

The tide has now gone out. Interest rates have surged this year, greatly increasing typical payments on used cars and reducing demand. Carvana's retail units sold dropped 8% in the third quarter. At the same time, Carvana's strategy of using debt to fuel its growth has become far more expensive. The company's total long-term debt has more than doubled since the end of 2021 to $6.3 billion, with much of that increase due to $3.275 billion of senior notes that bear a 10.25% interest rate.

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Source Fool.com