Buy Here Pay Here Dealerships
Notoriously, buy here pay here (BHPH) car dealerships target shoppers with bad credit scores who might not have any other options for buying a car; as such, they're able to set less-than-ideal auto loan terms and conditions that traditional car loans don't.
What Are Buy Here Pay Here Dealerships?
Simply put, a buy here pay here car dealership is one that offers direct financing to car buyers in the sense that the dealership—and not an affiliated bank, credit union, or other third-party lender—offers auto loans.
Buy here pay here dealerships not only sell you the car, but also offer you the loan to buy it. Ultimately, you buy the car from the dealership and make your payments to that dealership.
Traditional Dealerships vs. Buy Here Pay Here
Note that not every buy here pay here car dealership is strictly BHPH; some traditional car dealerships have started offering the buy here pay here option to certain car buyers, too.
Just as you would with any buy here pay here auto loan, make sure you know the warning signs (see Dangers of BHPH Car Loans below) before you sign on for the deal.
Dangers of BHPH Car Loans
Typically, buy here pay here car loans aren't ideal. They tend to target buyers with bad credit who might not have many other options—if any.
Be aware of some of these red flags when it comes to doing business with buy here pay here car lots.
Extremely Large Down Payments
Some BHPH car dealerships might require down payments high enough to cover what they originally paid for the vehicle. This isn't always the case, but if a buy here pay here dealership requires a down payment you simply can't afford, walk away—especially if you already have financial woes such as a bad credit score.
Double-Digit Interest Rates
Because you have a less-than-stellar credit report, many buy here pay here dealerships offer subprime credit interest rates, i.e., interest rates much higher than traditional auto loans. In turn, the dealership could make as much, if not more, on the interest rates as they do on the vehicle sale, which is even more of an incentive for them to require higher interest rates.
Learn more about interest rates, including average interest rates and the variables that can affect them, in our section on Auto Loan Rates.
Inability to Afford the Car
It might seem like the BHPH dealership has extended a helping hand, but the reality is the high interest rates will jack up your car payments higher than would normal car loans—and you might not be able to reasonably afford them. Make sure you know your budget before agreeing to any offers.
Weekly or Bi-Weekly Car Payments
This depends on the BHPH dealership, but some require more frequent payments than regular car loans. Also, some buy here pay here dealerships require in-person payments, so it's wise to choose one that's close to home if you take this route.
Missing or Unreasonable Warranties
BHPH dealerships don't always offer warranties. In the event you do get a warranty, the deductible could be astronomical, and for someone in a financial crunch, making car payments and repair payments could become impossible.
Risk for Going Out of Business
Due to what's known as a “cash crunch" (a lack of swift cash flow), some buy here pay here car dealerships go out of business more often than would traditional car dealerships. Sometimes, a BHPH car dealership needs to have the vehicle paid off within a specific amount of time; if it can't do so—and if it can't do so multiple times—it might just go out of business.
Repairing Your Credit Score
Finally, if you decide to purchase a vehicle from a buy here pay here car dealership, make sure the dealership reports your auto loan to the credit bureaus so you can begin building your credit score again.
Additional Auto Loan Options
Additional auto loan options include traditional auto loan options, such as getting an auto loan from a:
However, if you have bad credit, you still might face some trouble getting a loan—or one with manageable interest rates. That doesn't mean you should run to a buy here pay here car dealership. You still have options:
- Spend some time working on your credit score, especially if you need an auto loan after bankruptcy.
- Take the time to save for a hefty down payment.
- Consider refinancing your auto loan after your credit report is back up to par.
- Find a trusted co-signer with a good credit score.
- Take advantage of dealership incentives such as cash-back rebates.