Buy Here Pay Here Dealerships

BHPH dealers don't have quite as many requirements for approval as subprime lenders. In fact, since they generally don't rely on your credit score to approve you for financing, the most important things needed to qualify are income and steady employment.

A subprime lender is typically looking for a minimum monthly earned income of at least $1,500 to $2,000 gross (pre-tax) from a single source. A buy and pay here dealer may not have the W-2 income requirement, the single job requirement, or even a set minimum income requirement. The monthly income you'll need to qualify generally depends on how much the vehicle you're looking at sells for, how long you're hoping to finance it, and the monthly payment you're hoping to get.

Also, payments on your loan sometimes need to be made in person at the BHPH lot. These dealers may match your payment due dates to your pay schedule, which helps ensure full, timely payments. This means your payment schedule could be monthly, bi-weekly, or even weekly.

Another difference between a bad credit car loan and buy here pay here financing is the amount needed for a down payment. While a subprime lender typically requires $1,000 or 10 percent of the vehicle's selling price as a down payment, BHPH dealers may be more flexible - possibly limiting it to the amount of a single monthly payment.

Car dealerships accept trade-ins that aren't paid off. In a typical scenario, the dealership takes your trade-in and pays any remaining loan balance to the buy here pay here dealer, and you can either keep what's left over or use all or part of it as a down payment on your next vehicle. For example, if you owe $3,000 on your loan and a dealer is offering you $5,000 for your trade-in, they'll pay off the buy here pay here loan and you'll have $2,000 remaining to either keep or put down on your new car. If you've already paid off your vehicle, you can keep or apply all or part of its entire value toward a down payment.

However, this process is more complicated if you owe more on your loan than the car's actual cash value - a situation known as having negative equity. In a scenario where you owe $5,000 on your loan but a dealer is only offering $3,000 for your trade, you have to find a way to come up with the $2,000 difference. You can cover any negative equity out of pocket, wait until you have equity or have paid off the loan, or roll the difference into your next auto loan. Rolling over negative equity is expensive - it means you're paying for part of your old car in addition to your new vehicle, including interest - so it should be avoided.

While you can trade in a buy here pay here car, you'll want to make sure you know how much you still owe on the loan, get an idea of the trade-in value of your current vehicle using online estimators, and get a few offers from different dealerships to compare before making any decisions.