Buy-here-pay-here (BHPH) dealerships tend to get a lot of bad press, but you won't necessarily have a negative experience if you purchase a vehicle from one of them. It is possible to successfully navigate BHPH financing, but you have to know what you're getting into.

Also, if something does go wrong, it will be useful to understand your legal rights.

How Does A Buy Here Pay Here Car Dealership Work?

buy-here-pay-here, bhph, auto loan
A BHPH dealer is where you arrange a car loan and make payments on it right at the dealership. These dealers may also be called tote the note car dealers or in-house financers. You purchase the vehicle through dealer financing instead of a third party, such as a bank, credit union, or bad credit lender.

Traditional car dealerships use the services of third-party lenders in order to offer vehicle financing. They may sell the cars, but they don't fund the loans. However, this is not the case with buy-here-pay-here dealers.

BHPH dealers are also lenders. So, instead of going through third-party lenders, they do all of their financing in-house. Because of this, they're able to offer loans to buyers with all types of credit. In fact, they may not even run credit checks on customers. Basically, as long as someone can prove that they earn enough money to make a car payment, they can be financed at a BHPH dealership.

Of course, most of the cars that can be purchased from BHPH lots will be older vehicles with a decent amount of mileage on them. Buyers will also notice that the purchasing and repayment process is different.

  • A down payment is required nearly 100% of the time.
  • Instead of monthly, the buyer may be required to make payments weekly or biweekly.
  • Payments may have to be made in person at the dealership, but this practice is changing thanks to the digital age.

BHPH customers also need to be aware of the fact that their car will most likely come with a GPS device installed. This device will allow the dealer to easily locate and possibly repossess the vehicle if a payment is missed. Some dealers may even equip vehicles with a "kill switch" that can remotely disable a car if a payment is late.

In many cases, the difference between BHPH dealers and subprime lenders is shrinking, especially with the convenience of online shopping and payments. Some franchised dealerships even offer options similar to in-house financers. However, when you're shopping for a bad credit car loan, it's a different experience to shopping at a tote the note lot.

Finally, when looking for a buy-here-pay-here dealer, it's important to find one that regularly reports loans and payments to the credit bureaus. Otherwise, regularly making payments on time will do nothing to improve your credit.

When to Visit a BHPH Dealer

If you've been turned down for traditional lending, sometimes going through a BHPH dealer is your only option. But they shouldn't be your first choice due to some inconveniences that you may face. If you've gone through your bank or credit union and haven't been able to get a loan, or you've been turned down by traditional franchised dealerships, it may be time to visit a BHPH dealer.

The most important benefit of BHPH car dealerships is that they give credit-challenged people the opportunity to get much-needed transportation. In many cases, these dealerships aren't just an option – they may be the only choice if you've been turned down by traditional lenders.

Other times to turn to a BHPH dealer are when you're struggling with low credit, or have trouble proving your income is from all one source.

Benefits of Using a Tote the Note

BHPH dealers have less stringent requirements when it comes to proving your qualifications for a car loan. This means there are many benefits to getting a loan from a BHPH dealer such as:

  • One-stop shopping and quick qualification. Since the dealer is the lender at BHPH lots, there's no waiting around for financing approval from a third party. You can check out the vehicles available to you, discuss your needs with the dealer, and then they can let you know right away if you're getting an approval or not. Often you can go in for an auto loan and come out with a vehicle on the same day.
  • Less possibility of a credit check. Not all BHPH dealers run a credit check, and this is what appeals to many consumers. Without a credit check, the dealer relies on your proof of income, and willingness to provide a large down payment in order to gain approval. Sometimes, tote the note dealers require as much as 20% down on a vehicle.
  • Convenient payment schedules. Making more than one payment a month isn't convenient for all borrowers, but if you're on a tight budget, being able to make a few payments on the day you get a check can help keep you on track with your car.

Disadvantages of BHPH Loans

With all advantages come disadvantages, and getting a car from a buy here pay here dealer is no different. Here are some of the pitfalls to watch out for when you shop with a tote-the-note:

  • Selection may be limited, used cars only. One disadvantage to BHPH dealers is that they only deal in used vehicles. Your selection is limited to what is on the lot, and many cars may be older, higher-mileage models.
  • Higher interest rate likely. Because they don't always refer to your credit reports to see how you've handled credit in the past, many BHPH dealers charge a high interest rate to offset their risk. It's likely that interest rates can reach well over 20%.
  • Less chance for credit repair. Since these dealers don't often check your credit, they also might not report your timely payments to the credit bureaus. Without a record of your full on-time payments, your auto loan isn't likely to raise your credit score that way a bad credit car loan, which is always reported, can.

Buy-Here-Pay-Here Dealerships and Lending Laws

It's important to remember that buy-here-pay-here dealers are also lenders. This means that there are lending laws to which they must adhere. Granted, when you buy a car from a BHPH lot, there are certain inconveniences that you can't avoid. Such as:

  • A much higher-than-average interest rate
  • Paying more than the average price for a used car with higher mileage
  • An inconvenient payment schedule
  • The possibility of having your car disabled or towed if your payment is late

However, you should also expect your rights to be protected. For example, because they offer loans, BHPH dealers must adhere to the Truth in Lending Act (TILA). Under TILA, Regulation Z dictates that the following must be included in a written contract if you take out a loan to purchase a car:

  • It must be disclosed that the lender has retained all or portions of the amounts charged to you.
  • The cash price of the vehicle must be accurately disclosed.
  • The total amount being financed must be accurately disclosed.

Therefore, if you purchase a vehicle from a BHPH dealership, you will need to verify that the paperwork you receive is complete. If any document is missing or if any piece of information is omitted or improperly disclosed, you may seek legal recourse.

And while all of this is important, the best way to make sure your BHPH goes smoothly is to keep up with your payments. As long as you pay on time, every time, nothing bad can happen. Also, if you're working with a dealer that reports loans and payments, your credit score could increase during the course of your repayment period. Then, you may not have to purchase from a BHPH lot the next time you need to buy a car.

Another Bad Credit Car Loan Option

Aside from BHPH dealerships, you may be able to secure a bad credit car loan with a subprime lender. These lenders are third-party and signed up with special finance dealerships.

These loans are based on both your credit and your ability to prove you can take on auto financing. You don't meet directly with a lender, you work with a special finance manager at a dealership instead.

You may need to work with a subprime lender if your credit score is around 670 or lower; you've had trouble keeping up with loans in the past; or if you've had bankruptcy or repossession which dropped your credit score.

Unlike BHPH auto loans, subprime lenders report their loans to the credit bureaus – giving you the opportunity for credit repair.

Financing Options for Bad Credit Car Buyers

Before assuming that a BHPH dealer is your only option, try contacting Auto Credit Express. We've been helping car buyers with credit issues for nearly two decades, and we'll work hard to get you the assistance you need. How? We can match you with a local dealership that can work with unique credit situations.

Our service is free and comes with no obligations, so you have nothing to lose. Go ahead and fill out our simple and secure auto loan request to get started today.