When your credit score makes getting approved for a car loan difficult, you may feel like your only option is buying through a buy here pay here (BHPH) dealership. These dealers have their ups and downs, but they’re also not the only route when you’re struggling with credit issues.
How Do Buy Here Pay Here Dealerships Work?
Ever see a dealership advertisement claiming, “Bad credit, no problem”? It’s likely a BHPH dealer. They’re known for financing borrowers regardless of their credit score, and selling only used vehicles.
Since these dealerships don’t rely on third-party lenders, they typically don’t check credit during the approval process. Even if your credit score is rock-bottom, if you’ve got the income and a down payment, you’re likely to get into an auto loan working with a BHPH lot.
This is because BHPH dealers have in-house financing. This means the car shopping and lending process are done at the same place, and your dealer is also your lender. It’s a one-stop-shop car lot, which has its conveniences as well as its own set of hassles for borrowers.
Is a BHPH Dealership Right for You?
If you’ve been denied financing by all types of auto lenders, including subprime lenders, a BHPH lot could be for you. These dealerships are more concerned about how you’re going to repay the loan than other lenders.
While they aren’t likely to check your credit, they do want to see proof of income and you’re expected to have a sizable down payment. Your income source needs to last through the loan term and be consistent. The down payment requirement varies between dealers, but it can be 20% or more of a vehicle’s selling price.
If you meet these requirements, a BHPH dealership might be the way to go if you needed transportation yesterday. However, keep in mind that BHPH lots have higher than average interest rates on their car loans. You could end up paying much more than the vehicle is worth if you only qualify for the highest interest rate.
Additionally, if you’re concerned about credit repair, a BHPH dealer may not report your auto loan to the major credit reporting bureaus. Even if you make every car payment on time and in full, your credit score may not improve. But if you miss a payment, BHPH dealerships are likely to report those – along with a default and a repossession.
If you decide to look for a BHPH dealer, ask if they report their loans to the major credit reporting agencies if you want your credit score to reap the benefits of an auto loan.
Other Auto Loan Options to Explore
If you haven’t asked your credit union or bank for a car loan, you should check with them beforehand. Typically, the longer you’ve been a member in good standing, the higher your chances of auto loan approval. Banks usually have better loan terms than a BHPH dealership, but they typically only approve those with good credit scores.
If you’ve already applied for a car loan with your bank or credit union and your credit score is what’s stopping you from approval, subprime financing is another route to look into.
Subprime financing, also called bad credit financing, is done through a dealer’s special finance department. These lenders look at your credit reports, but they also take into account your overall financial situation.
With a subprime auto loan, your income and residence stability are used to help the lender make their loan decision. If you have stable income, consistent work history, and a history of living in the same area, you could be eligible for subprime financing. While other third-party lenders may deny you financing because of your credit score, subprime lenders work with borrowers in all types of unique credit situations including bankruptcy, repossession, and divorce.
You still need to meet a subprime lender’s requirements, which typically include proving your income, your residency, and your identity, providing personal references, and having a down payment.
The biggest plus side to working with a subprime lender is the fact that they report car loans to the credit reporting agencies. With a good payment history, you can repair your credit for future loan opportunities.
Finding a Subprime Lender
If a BHPH dealership doesn’t feel right to you, and a traditional financial institution has denied your application for auto financing, a subprime lender could be your next step in getting into a vehicle.
Finding a dealer with a special finance department that works with subprime lenders is something we can help with. Here at Auto Credit Express, we match bad credit borrowers to these dealerships for free – we have a nationwide network of dealers that work with all types of credit situations.
To get started, complete our free car loan request form and we’ll look for a dealership that has the lending resources you need in your own local area.