Well, it seems like the most rational decision. Whether or not it is, I guess, depends very much on the persons situation.

For example, if you need to buy a car now (eg because you rely on it for work or something and can't wait to buy), then sure, it might very well be. On the other hand, if that's not true, then saving the monthly payment until you can buy it outright is much more rational (and cheaper). I understand that many people can't do that, however.

I neglected to mention a key point. When he'd show them a plan with a much lower total cost, but a higher monthly payment, they'd accuse him of trying to trick them into a higher payment. No way were they going to fall for that one.

They certainly believed they were making the most rational decision. It didn't help that used car salesmen don't have a reputation for honest dealings.