In the ever-evolving world of auto financing, the “Buy Here Pay Here” (BHPH) dealership model has carved a unique niche. Unlike traditional car dealerships, BHPH dealerships offer both buying and financing a vehicle all in one place. They cater specifically to buyers who might find it challenging to secure financing from traditional lenders due to bad credit or other issues. While Buy Here Pay Here car dealerships can be a lifeline for some, it’s not without its controversies. Let’s dive deep into the pros and cons of this model.
Pros of Buy Here Pay Here Car Dealerships:
Accessibility for Those with Poor Credit: One of the primary reasons BHPH dealerships exist is to serve customers who have poor credit, no credit, or previous personal bankruptcy. Traditional lenders often decline loans to those with bad credit scores, but BHPH dealerships prioritize other factors, offering a chance to individuals who might otherwise be shut out.
Convenience: The one-stop nature of BHPH dealerships streamlines the buying process. There’s no need to get pre-approved from an external lender or run between institutions. Everything, from vehicle selection to loan approval, happens in one place.
Flexible Payment Plans: Many BHPH dealerships are known to offer flexible payment plans. Some might offer weekly or bi-weekly payments, which can be helpful for buyers who align their payments with their paydays.
Potential for Credit Repair: If the BHPH dealership reports to credit bureaus, timely payments can help improve the buyer’s credit score. It’s essential, however, for buyers to confirm this upfront, as not all BHPH dealerships report payment histories.
Trade-In Opportunities: Some BHPH dealerships allow trade-ins, helping to reduce the down payment or the overall loan amount.
Cons of Buy Here Pay Here Car Dealerships:
Higher Interest Rates: The total cost of auto financing at BHPH dealerships is typically higher due to higher interest rates compared to traditional lenders. These rates often border on usurious and can lead to buyers paying significantly more over the loan’s life.
Short Loan Terms: Many BHPH dealerships have shorter loan durations. While this means you might pay off the car sooner, it also means higher monthly payments.
Risk of Repossession: Due to the high-risk nature of BHPH loans, dealerships tend to have strict repossession policies. Even a single missed payment can result in the car being repossessed.
Less Vehicle Choice: BHPH lots typically have older vehicle models with higher mileages. While they might be more affordable than newer models, these vehicles could be more prone to mechanical issues.
No Warranty or Limited Warranty: Many cars sold at BHPH dealerships are sold “as-is,” meaning there’s no warranty. If they do come with warranties, they’re often very limited. Buyers may end up spending more on repairs.
Potential for Negative Credit Impact: If the dealership reports to credit bureaus and the buyer missed payments, it can further damage their credit. And if the dealership doesn’t report to credit bureaus, the buyer won’t get any positive credit-building benefits from timely payments.
Lack of Transparency: There have been reports of BHPH dealerships not being upfront about interest rates, payment terms, and vehicle history. This lack of transparency can lead buyers into unfavorable terms.
Buy Here Pay Here Alternatives
As previously noted, it’s uncertain whether BHPH dealerships will report payment histories to credit bureaus. While this might be favorable for those with inconsistent payment patterns, it’s not beneficial for individuals aiming to restore their credit through timely payments. Notably, some of the best dealerships for bad credit aren’t necessarily BHPH establishments. Many of these dealerships offer both new and used vehicles.
Their distinguishing feature is their extensive network with subprime auto financiers who specifically serve customers with subpar credit scores. Crucially, these financiers do report payment activities to credit bureaus. Numerous subprime car buying services have received positive feedback from consumers. One notable example is Auto Credit Express, which connects car buyers with compromised credit scores to dealerships equipped with both the suitable inventory and lenders, thereby optimizing loan approval chances.
Wrapping It Up
Buy Here Pay Here car dealership financing serves a niche in the automotive sales industry, primarily helping those with poor credit. While they offer the advantage of convenience and accessibility, it’s imperative to approach them with caution. Prospective buyers should be well-informed, ask questions, and carefully review all terms before committing. Ideally, BHPH should be considered after exhausting other, more traditional financing avenues, ensuring that it’s truly the best fit for the buyer’s situation.
AutoByPayment.com offers accurate estimates of new and used car loan payments based on self-selected credit score, current rebates, down payment, and trade equity or negative equity, without customers having to provide their personal identifying information such as email and phone.