Buy-Here-Pay-Here Dealers Explained

What Is a Buy Here, Pay Here (BHPH) Car Lot?

A buy here pay here car lot is an in-house financing dealership where the dealer is the lender. These dealerships do not use third-party lenders such as banks and finance companies. Instead, they finance the vehicle themselves and collect the money you repay. This sometimes means making payment in person, or more frequently than at a standard dealership, like a used car lot or special financing dealer.

How BHPH Car Lots Work?

BHPH dealers work by using alternatives to a credit check to help get you financed. Instead of checking your auto credit score like a standard dealership, these lenders look at your income and ability to make a down payment.

Pros and Cons of Buy Here, Pay Here Car Lots

There are several pros and cons:

• Quick lending -- A positive that comes from a BHPH dealership is that they don't typically check your credit, and don't have to wait for third-party financing. This means you have the potential to be in and out with a vehicle in a shorter amount of time. You can usually get the car the same day you apply.
• No credit check -- This is a big perk for people who don't have the best credit situation. When you're struggling with credit issues, a BHPH that doesn't look at your credit history may be your easiest way to get approved. Though this is a positive thing in most cases, you will pay for the privilege.
• Used cars only -- The first drawback to getting a loan at an in-house financer is that you only have used cars to choose from. Typically, these cars will be a little older and have more miles on them than vehicles you find at other used car lots, such as franchised dealerships and special finance car lots.
• High interest rates -- High interest rates are used to offset the fact that these lenders don't typically check your credit. You may see rates that run very high, into the 20% range and higher. When this happens, you have to be very careful of negative equity, where you owe more for the car than it's worth.
• Credit repair may not be possible -- If the lender doesn't report your loan to the credit bureaus, you won't get the credit for making your payments on time, and your credit will not improve. These lenders don't usually report to the credit reporting agencies, but some of them do. So if credit repair is important to you, check if the dealer reports loans before you sign the contract.
• More frequent payments -- Whether you view this as good or bad depends on your situation. Some BHPH dealers require you to make payments every week or every two weeks. While a flexible schedule with smaller payments may be good for some people, it could be inconvenient for others, depending on your pay schedule.

BHPH Risks and What to Watch Out For

The biggest risks you often face from BHPH dealerships are the risk of breakdown from purchasing an older used vehicle, and the risk of paying more for a vehicle than it's worth.

When it comes to BHPH lots, vehicles are sold as-is, there is no warranty or guarantee that the car will last. For this reason, it's very important that you take the vehicle for a test drive – preferably to an independent mechanic who can give it a once-over. By getting the vehicle inspected, you lessen the risks you take by driving a car that you don't know the history on.

And, speaking of history, be sure to get a vehicle history report on the car you're thinking of purchasing to ensure it doesn't have hidden issues or a salvage title. Another risk of purchasing a vehicle from a BHPH is the risk of getting a vehicle that has been damaged and repaired. Sometimes these vehicles have experienced title-washing, where a totaled vehicle gets fixed and resold.

The harm in this is that these cars may not be as structurally sound as before, putting you and your passengers in greater danger in case of a crash. That's not to say this always happens, but it is a risk you have to watch out for.

If a car lot doesn't allow you to take the vehicle for an inspection, you should view this as a red flag and walk away.

Who Should Consider BHPH Financing?

Just because there are risks involved in purchasing a vehicle through a BHPH, doesn't mean that they don't serve a purpose. These dealerships are used daily by people with less-than-perfect credit who just need a car now.

These borrowers are willing to pay extra, often because they don't have a choice. BHPH lots are a good financing option if you have an outstanding circumstance that's blocking you from financing at a traditional dealership, such as several part-time jobs, or if you don't get a traditional W-2 paycheck.

It could also be an option for a bad credit borrower who just can't get past the credit check at a traditional car lot. However, in many cases, some alternatives could help even bad-credit borrowers get the financing they need.

Alternatives to Buy Here, Pay Here Financing

If you're not willing to get to a tote-the-note lot to get your next vehicle, there are some alternatives you can look into to help with financing. Let's look at the options:

• Get a Cosigner – A cosigner is a great option for people who are struggling with credit, but meet all the other criteria for a car loan. A cosigner acts as a backup payer in case you can't meet your loan obligations. This gives a lender peace of mind when they're on the fence due to your credit score.
• Credit Unions or Banks – A credit union or a bank may be a good alternative to a dealership loan, especially if you're a member in good standing. This is often the first place to look when you need an auto loan. Know that a credit union typically has lower rates, but you must be a member, whereas a bank may finance you even without a prior account with them.
• Buy from Private Seller – People sell their vehicles privately all the time. If you have the cash and need a car, this is often a good way to go. The same rules apply, though: test drive the car, get a vehicle history report, and make sure to get a clean title and a bill of sale.
• Save up for a Down Payment – Sometimes, a down payment can mean the difference between approval and denial at a traditional lender. When you use a down payment, you are lowering the amount you need to finance, and a large enough down payment may mean you lower the financed amount enough to qualify for the loan with poor credit.

FAQs

Is Buy Here, Pay Here a Good Idea?

BHPH lots can be a good option when you're in a pinch, but in the long run, they could end up costing you more than the vehicle is worth. This means that by the time you finish paying off the vehicle, you won't be able to sell or trade it in for the same cost, and you will end up losing money in the deal.

How Do Buy Here Pay, Here Dealers Repossess Your Car?

Like any lender, if you stop making payments on your car, your vehicle is at risk of being repossessed. Unlike a traditional dealership, BHPH dealers sometimes install GPS trackers and remote kill switches, which can disable your vehicle if you miss a payment. This means the car won't drive, and the lender will know exactly where to come to tow the vehicle from. To avoid this, check with the dealer as to their practices, and be sure you can keep up with the payments on whatever schedule is required.

Do BHPH dealers report to credit bureaus?

It depends on the dealer. Some BHPH dealers do report to the credit bureaus, so making your loan payment on time will definitely improve your credit, but typically, these dealers have a reputation for not reporting to the credit reporting agencies. In this case, no matter what you do, it won't help your credit. It' up to your lender to tell the credit bureaus, but usually they only report when you miss a payment, not when you make them.

Do you need a down payment at Buy Here Pay Here?

Yes. A down payment is always required at a BHPH dealer. Typically, they ask for a down payment of around 20% or more of the vehicle price.

How to get out of a buy here, pay here car loan?

Getting out of a BHPH loan requires selling the vehicle, trading it in to a different dealer (or trading in at the same lot), voluntarily returning the vehicle without finishing paying (known as a voluntary repossession), or refinancing to pay off the loan and get a new one from a different lender. No matter what you choose to do, you will have to repay what you owe the lender one way or another, since vehicles don't come with return policies.