What Are Buy Here Pay Here Dealerships?

Buy Here Pay Here (BHPH) dealerships operate differently from traditional car lots. While conventional dealerships sell vehicles and arrange financing through banks or credit unions, BHPH dealers handle both aspects themselves.

These dealerships specifically target consumers with poor credit histories, no credit, or past financial problems who might struggle to secure financing elsewhere. The name comes from their business model: you select and purchase the vehicle at the same location where you'll make your regular payments.

The payment structure often involves weekly or bi-weekly payments rather than monthly ones, and many BHPH dealers require in-person payments at their location. Some modern BHPH businesses have adapted by offering online payment options, but the fundamental concept remains the same – the dealer acts as both seller and lender.

Advantages of Buy Here Pay Here Financing

Easier Approval Process: The primary benefit of BHPH dealerships is their accessibility. Traditional lenders typically reject applicants with poor credit scores, bankruptcies, or limited credit history. BHPH dealers focus less on credit scores and more on your income and ability to make regular payments.

Quick Purchase Process: The car buying process at BHPH lots is often faster than at traditional dealerships. Since there's no third-party lender involved, you can often select a vehicle, complete paperwork, and drive away the same day.

Opportunity to Rebuild Credit: Some (but not all) BHPH dealers report your payment history to credit bureaus. If yours does, making consistent on-time payments can help improve your credit score over time. However, this benefit only applies if the dealer reports to credit agencies, so it's important to ask about this before purchasing.

Transportation Solution: For many people with damaged credit, BHPH dealerships provide access to necessary transportation when other options aren't available. Having reliable transportation can be essential for maintaining employment and handling daily responsibilities.

Drawbacks of Buy Here Pay Here Cars

Higher Interest Rates: Perhaps the biggest disadvantage of BHPH financing is the cost. Interest rates at these dealerships are substantially higher than those offered by traditional lenders, sometimes reaching 20% or more. This means you'll pay significantly more for the vehicle over the life of the loan.

Limited Vehicle Selection: BHPH lots typically offer older, high-mileage vehicles. The inventory is usually more limited than at traditional dealerships, giving you fewer options to choose from. Many vehicles are previous trade-ins or purchased from auctions.

Aggressive Collection Practices: BHPH dealers often install GPS trackers and starter interrupt devices on their vehicles. These allow them to locate and disable the car if you miss payments. Their collection practices can be more aggressive than traditional lenders because their business model accounts for a higher percentage of defaults.

Higher Down Payments: While BHPH dealers make it easier to get approved for financing, they typically require larger down payments than traditional dealerships. This helps reduce their risk and ensures you have some skin in the game.

Potential for Negative Equity: The combination of higher prices, substantial interest rates, and the rapid depreciation of older vehicles often creates a situation where you owe more than the car is worth throughout most of the loan term.

Is Buy Here Pay Here Right For You?

Determining whether a BHPH dealership makes sense depends on your specific financial situation and needs. Consider these factors when making your decision:

Your Credit Situation: If you have very poor credit or no credit history and need a vehicle quickly, BHPH might be your only option. However, if your credit is borderline or you have time to improve it, exploring other financing avenues could save you money.

Your Budget: Calculate the total cost of the vehicle, including interest, before committing. Can you afford the weekly or bi-weekly payments without straining your finances? Remember that the total amount paid will be substantially higher than the vehicle's value.

Vehicle Needs: Are you willing to accept an older model with higher mileage? If you need a specific type of vehicle or want something newer with lower mileage, a BHPH lot might not meet your needs.

Long-term Financial Goals: Consider how this purchase fits into your broader financial picture. If rebuilding credit is important to you, confirm that the dealer reports to credit bureaus. Otherwise, your on-time payments won't help improve your credit score.

Alternatives to Buy Here Pay Here Financing

Before committing to a BHPH dealership, explore these alternatives that might offer better terms:

Credit Unions: These member-owned financial institutions often have more flexible lending criteria than banks and may offer loans to people with less-than-perfect credit at more reasonable interest rates.

Online Lenders: Several online lenders specialize in auto loans for people with poor credit. Shopping around online might help you find more favorable terms than those offered by BHPH dealers.

Co-signer: Having someone with good credit co-sign your auto loan can help you secure financing from traditional lenders at lower interest rates.

Save and Pay Cash: While not immediate, saving for a used car you can purchase outright eliminates interest charges and financing concerns altogether.

Improve Your Credit First: If your situation allows, taking 6-12 months to improve your credit score before car shopping could open up better financing options. Focus on making on-time payments on existing debts and reducing credit card balances.