Consumer Car Buying Advice Blog

For today’s topic, I would like to discuss the difference between special finance car loans and buy here pay here (sometimes called tote the note) car loans. Although both loans occur in the sub prime market, there are marked differences between the two. Here is a description of both and the advantages and disadvantages of each type of loan:

Buy Here Pay Here Loan

This is a loan that you take out at a buy here pay here car lot. It consists of a down payment plus a fixed number of loan payments. The loan payments are due every week and are usually made in person at the lot you purchased the car from. You are borrowing the money from the dealer to pay for the car. If you fall behind on your payments, it is the dealer that you talk to regarding other payment arrangements and if you stop making payments, it is the dealer that will repossess the car. The dealer also has the option of whether or not to report the payment history to the 3 major credit bureaus. The dealerships that offer these loans generally sell only used cars. Very rarely do they sell, or are in any way affiliated with, a new car franchised dealer.

Advantages: The cars are usually less expensive. Many people prefer to make payments on a weekly basis. Payments are made face to face so you know your lender personally and they know you personally. Many dealers don’t bother with a credit check before selling you a car.

Disadvantages: Most buy here pay here dealers do not report to the credit bureaus. The cars offered for sale are usually older and have high mileage and as a result, some of these cars are not that reliable. Carfax vehicle history reports are usually not furnished by the dealer for these vehicles. For most people, it is not convenient to visit the dealer every week to make a payment. Loan terms usually range from 12 to 24 months, limiting the amount of the loan to lower-priced older cars. Interest rates can be extremely high.

Special Finance Car Loan

This type of loan, sometimes called a bad credit car loan or a credit repair car loan, is usually available only thru a franchised new car dealer. The car that you are financing can be either a new car or a used car (sold through the dealer’s used car lot). Although the dealer sells you the car, the finance contract is sold to a bank. There is normally a down payment plus a fixed number of loan payments. The loan payments are made to the bank once a month, usually by mail but sometimes by electronic debit from your bank account. Since the bank holds the finance contract to your car, any issues of payment or non-payment are made with the bank. Most sub prime banks report your payment history to the 3 major credit bureaus. Most of the dealerships that offer these loans sell both new and used cars. You can even apply for this type of loan online. Our web site, www.fundingway.com, allows you to complete a loan application in the comfort and privacy of your home.

Advantages: Most sub prime lenders report to the 3 major credit bureaus. This is important if you are trying to repair your credit history and re-enter the prime loan market. The selection of vehicles from a new car dealer is greater. The vehicles are, generally, either new with no miles or newer used vehicles with lower miles. In many instances, Carfax vehicle history reports are available for most or all of the used vehicles in inventory. Loan terms start at 24 months and can extend to as many as 72 months, making a more expensive car more affordable.

Disadvantages: Not all franchise car dealers offer this service and the level of experience and expertise in these departments can vary widely. The selling price of the cars is usually higher, due to newer vehicles and lower mileage. Interest rates are still high, due to the nature of the loans. Any problems with repayment will be reflected in your credit report.

The Bottom Line: If you are interested in cheap transportation that doesn’t require a credit check, then the buy here pay here dealer wins. However, if you are seriously interested in repairing and re-establishing your credit, the special finance loan is the obvious choice. Here at Auto Credit Express, we have helped thousands of customers re-establish their credit while driving dependable new or newer used vehicles. To avoid the disappointment of not finding a dealer that offers a professional approach to special finance bad credit car loans, simply visit us on the web at www.fundingway.com.

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