The Good & The Ugly About Buy Here, Pay Here Dealerships

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When it comes to buying a car, most people want to go the traditional route: find a dealer, look at cars, test drive them, and then make a purchase.

However, there are other options out there, and one of those is so-called “buy here, pay here” dealerships. But what are these places, and how do they work?

Let’s take a look!

What Is A Buy Here, Pay Here Dealership?

Buy here, pay here (BHPH) dealerships are, quite simply, car dealerships that also act as lenders. That means that they can offer in-house financing to customers who may not be able to get a loan from a traditional bank or lender.

How Does Buy Here, Pay Here Work?

The way that buy here, pay here dealerships work is pretty simple: you find a car that you like, and then you make payments directly to the dealership. The dealer will usually require a down payment, and then you’ll make payments on a regular basis until the car is paid off.

Once the car is fully paid for, the dealership will provide you with the title, and you’ll be free to drive off into the sunset! If you can no longer meet the minimum payment requirements, the dealership may require you to return the car.

Who Should Use Buy Here, Pay Here Financing?

There are a few different groups of people who might want to consider using buy here, pay here financing:

People with low credit scores.

If you have bad credit, it can be tough to get a loan from a traditional bank or lender. That’s where buy here, pay here dealerships come in—they may be more likely to approve your loan, even if your credit is less than perfect.

People without enough money for a down payment.

Many traditional lenders require a down payment of 10% or more, but that might not be possible for everyone. With buy here, pay here dealerships, the required down payment is usually lower.

People who want to avoid going through a bank.

Some people simply don’t want to deal with banks or other traditional lenders. If that’s the case, then a buy here, pay here dealership might be the right choice.

What Are the Pros of a Buy Here, Pay Here Dealership?

There are a few major benefits to the BHPH model—let’s break down the highlights.

The Pros of Buy Here Pay Here Dealerships

  1. They’re convenient. You won’t have to go through the process of applying for a loan and dealing with a bank or credit union. Dealing with a bank or credit union can be time-consuming and impersonal, compared to working with a buy here pay here dealership. The application process is usually quite straightforward, and you can often get approved for financing very quickly.
  2. They’re accessible. Buy here, pay here dealerships are often more willing to work with people who have less-than-perfect credit. If you have bad credit, it can be tough to get a loan from a traditional lender. However, buy here pay here dealerships may be more likely to approve your loan.

What Are the Cons of a Buy Here, Pay Here Dealership?

Of course, there are also some potential drawbacks to this model.

The Cons of Buy Here Pay Here Dealerships

  1. They’re expensive. You might end up paying more in interest than you would with a traditional loan. This happens because buy here pay here dealerships are often more willing to work with people who have poor credit. And those people usually have to pay higher interest rates as a result.
  2. They’re complex. You could end up being “upside down” on your loan if you owe more money than the car is actually worth. For example, let’s say you buy a car for $10,000 and put $2,000 down. However, the car’s value depreciates quickly, and it’s only worth $9,000 after a year. If you still owe $9,000 on the loan, you’re “upside down.” This can make it tough to sell or trade in the car.
  3. They’re risky. Another con is that if you default on your payments, the dealership can repossess your car. That can be a major hassle, and it’s something you want to avoid if possible.

What Are The Requirements for Buy Here, Pay Here Financing?

The requirements for buy here pay here financing vary from dealership to dealership. However, there are a few things that are usually required:

  1. A down payment. The size of the down payment will vary from dealer to dealer, but it’s usually between 10% and 20% of the total cost of the car.
  2. Proof of income. The dealership will want to see proof that you have a steady income. This is usually in the form of pay stubs or tax returns.
  3. Proof of residency. You’ll also need to show proof of residency, such as a utility bill or lease agreement.
  4. A valid driver’s license. Of course, you’ll need a valid driver’s license to finance a car.
  5. References. The dealership may also require you to provide references, such as family or friends.

What Should You Do Before Going to a Buy Here, Pay Here Dealership?

If you’re thinking about using a buy here pay here dealership, there are a few things you should do first:

  • Check your credit score. Knowing where you stand will help you understand what kind of loan terms you might be eligible for. You can get a free copy of your credit report from each of the major credit bureaus once per year.
  • Shop around. Don’t just go to the first BHPH dealership you find. It’s important to compare offers from multiple dealerships to make sure you’re getting the best deal possible.
  • Get pre-approved for financing. Once you know where you stand, you can start looking for financing options. Many BHPH dealerships will offer pre-approval, which can help you save time and money in the long run.

Does Buy Here, Pay Here Financing Affect My Credit Score?

Buy here pay here dealerships usually don’t report to the major credit bureaus, so using one won’t have a positive or negative effect on your credit score.

However, if you default on your loan and the dealership sends your account to a collections agency, that could negatively impact your score.

Will Making Payments On Buy Here, Pay Here Financing Improve My Credit Score?

No, buy here pay here payments won’t improve your credit score.

However, if you make all of your payments on time and in full, it will reflect well on your payment history—which is one of the major factors that make up your credit score.

Difference Between Buy Here Pay Here vs. Tote-the-Note Financing

Tote-the-note financing is another type of in-house financing, and it’s pretty similar to BHPH dealerships. The main difference is that, with tote-the-note financing, the lender actually owns the car until it’s paid off.

With BHPH dealerships, you’re technically the owner of the car from the moment you drive it off the lot. The dealership is just acting as your lender.

Difference Between Buy Here Pay Here vs. Your Job Is Your Credit Financing

You may have also heard of something called “your job is your credit” financing. This type of financing is similar to BHPH dealerships in that it allows people with less-than-perfect credit to get a car loan.

The main difference is that, with BHPH dealerships, you’re working directly with the dealership. With “your job is your credit” financing, you’re working with a third-party lender.

Alternatives to Buy Here, Pay Here Financing

If BHPH financing doesn’t sound like it’s for you, there are a few other options to consider:

  • Traditional Lenders (e.g., banks or credit unions): Traditional lenders are the most obvious alternative to BHPH dealerships. They usually have lower interest rates and better loan terms. However, they also tend to be more selective about who they approve for financing.
  • Specialty Lenders (e.g., subprime lenders): Specialty lenders are another alternative to BHPH dealerships. They’re typically more willing to work with people who have poor credit. However, they also usually have higher interest rates and less favorable loan terms.
  • Private Sellers: If you’re thinking about buying a used car, you might also consider going through a private seller. This can be a good option if you’re able to find a seller who’s willing to finance the purchase. Just be sure to do your homework and protect yourself from fraud.
  • Peer-to-Peer Lenders: Peer-to-peer lenders are a relatively new option for people with poor credit. They connect borrowers with investors who are willing to fund their loans. Interest rates and loan terms vary depending on the lender, but they’re typically more favorable than what you’d get from a BHPH dealership.
  • Online Lenders: There are also a number of online lenders that cater to people with bad credit. Like peer-to-peer lenders, they connect borrowers with investors who are willing to fund their loans. Interest rates and loan terms vary depending on the lender, but they’re typically more favorable than what you’d get from a BHPH dealership.

Each option has its own set of pros and cons, so it’s important to do your research before making a decision.

Ways To Find Buy Here, Pay Here Dealerships

If you’re looking for a BHPH dealership, there are a few ways to find one:

  • Do a quick search online. A simple Google search can help you find nearby dealerships. You can type in “Buy here pay here dealerships in [City], [State]” to aggregate top results. Or you can do a search on individual dealerships that may advertise their financing options on their website.
  • Check the classifieds. You might find ads for BHPH dealerships in your local newspaper or online. While these ads might not specify BHPH financing options, you can contact dealers directly for more information.
  • Ask around. Friends or family members might be able to recommend a good dealership in your area—especially if they have personal BHPH experience.

Bottom Line

If you’re thinking about using a BHPH dealership, it’s important to do your research and understand the risks involved. Weigh the pros and cons carefully before making a decision.

And, if you decide to go ahead with BHPH financing, be sure to shop around for the best deal possible.

Have you bought from a buy here, pay here dealerships before? If so, let us know about your experience in the comments below!