Financing at Buy Here Pay Here Dealers: What You Need to Know

If your credit is shot or you don’t have much of a credit history, getting a car loan from a traditional dealership can feel impossible. That’s where Buy Here Pay Here dealers come in. They sell cars and also finance them in-house, meaning they’re the dealer and the lender.

It sounds convenient, and it is. But convenience comes with tradeoffs. This post breaks down the financing process at Buy Here Pay Here (BHPH) dealerships, what you can expect in terms of down payments and interest rates, and what alternatives you should consider before signing anything.

Buy Here Pay Here Dealers: The Financing Process

1. Choose Your Vehicle

At Buy Here Pay Here dealers, your car selection usually comes after your financing is approved. That’s the opposite of how it works at traditional dealerships. You don’t pick your dream car and then apply for financing, you tell them your car buying budget, and they show you what you qualify for.

Tips for Choosing a Car at a BHPH Dealership:

Manage Your Expectations: The cars at BHPH lots are typically used and may have higher mileage or wear and tear. Don’t expect to find a brand-new car or a luxury model.
Focus on Reliability: Prioritize cars with good fuel efficiency and low maintenance costs. Ask about the car’s history and any known issues. Consider getting a pre-purchase inspection from a trusted mechanic.
Stick to Your Budget: Don’t be tempted to choose a car that’s outside your approved financing amount. Remember, BHPH interest rates are high, and you don’t want to end up with unaffordable payments.

2. Provide Basic Information

Most Buy Here Pay Here dealers don’t run a traditional credit check. Instead, they’ll ask for proof of income (like pay stubs), proof of residence, a valid driver’s license, and references. They’re more interested in your current ability to pay than your past mistakes.

What to Bring to a BHPH Dealership:

Proof of Income: Recent pay stubs, bank statements, or other documentation that shows your income.
Proof of Residence: A utility bill, lease agreement, or other document that shows your current address.
Valid Driver’s License: Make sure your driver’s license is current and valid.
References: Be prepared to provide personal or professional references who can vouch for your character and reliability.

3. Down Payment

Next comes the down payment. This is where many people are caught off guard. BHPH down payments are often higher than what traditional lenders require.

Down Payment Requirements

Down payments at BHPH dealerships are usually steep, often between 10% and 30% of the vehicle’s price. Why?

The vehicles are used and may not be in top condition.
The dealership is taking on more risk by lending to buyers with poor credit.
A larger down payment reduces that risk.

For example, on a $10,000 vehicle, expect to put down $1,000 to $3,000. Some dealerships might let you break that into installments, but many want it upfront.

Tips for Saving for a BHPH Down Payment:

Create a Budget: Track your income and expenses to see where you can cut back and save more money.
Reduce Expenses: Look for ways to reduce your monthly expenses, such as eating out less, canceling unused subscriptions, or finding a cheaper cell phone plan.
Increase Income: Consider taking on a side hustle or selling unwanted items to earn extra cash.
Set a Savings Goal: Determine how much you need to save for a down payment and set a realistic timeline to reach your goal.

4. Loan Terms and Payment Schedule

Buy Here Pay Here dealers usually set shorter loan terms, often 12 to 36 months. They’ll give you a payment schedule that you’ll need to stick to, often on a weekly or bi-weekly basis. Many even require you to come into the dealership to make your payments in person.

Interest Rates: BHPH vs. Traditional Dealerships

Interest rates at BHPH dealerships are high. It’s not uncommon to see annual percentage rates (APRs) between 15% and 29%. Compare that to traditional auto loans, which, even for subprime borrowers, usually stay between 6% and 20%, depending on credit and the lender.

Why the big gap?

BHPH dealers accept higher-risk borrowers.
The loans are shorter term.
The dealership is not a bank, they rely on these high rates to make the deal profitable.

When you add in the inflated vehicle prices that are common at BHPH lots, you can end up paying double what the car is worth over the life of the loan.

5. Drive Off the Lot

Once you sign the paperwork and hand over the down payment, you drive away with the car. But don’t let that momentary relief make you forget the high cost you’re agreeing to.

Alternatives to Buy Here Pay Here Dealers

Before locking yourself into a high-interest BHPH loan, consider alternative lending sources and other options:

1. Subprime Auto Finance Companies

These lenders specialize in working with bad-credit borrowers, but unlike Buy Here Pay Here dealers, they don’t sell cars, they just finance them. Many traditional dealerships work with these lenders. You may still pay a higher interest rate, but not as high as BHPH, and you’ll have access to a better selection of vehicles.

2. Buy a Cheaper Car with Cash

If you’ve saved enough for a BHPH down payment, you might be able to buy a budget used car outright for the same amount. It won’t be flashy, but it’ll be yours, no interest, no payments, no repo risk.

A $2,500 car from a private seller might not be glamorous, but it can still be reliable transportation. And without a loan hanging over your head, you can save up and upgrade later.

3. Get a Cosigner

If you have a friend or family member with good credit, see if they’d be willing to cosign a loan with a traditional lender. Their credit helps you qualify for better rates, and you still get the benefit of building your credit history with on-time payments. Just remember, if you default, their credit takes the hit, so only ask someone who really trusts you.

Additional Alternatives to Buy Here Pay Here Dealers:

Credit Unions: Some credit unions offer auto loans to members with less-than-perfect credit. Check with your local credit union to see what options are available.
Peer-to-Peer Lending: Online platforms connect borrowers with individual investors who are willing to lend money. This can be an option for those who don’t qualify for traditional loans.
Improve Your Credit: If you have time, focus on improving your credit score before applying for a car loan. This can help you qualify for better rates and terms.

Wrapping It Up

Buy Here Pay Here dealers serve a purpose, they give people access to transportation when traditional lenders won’t. But that access comes with high costs, both upfront and over time. Before committing to BHPH financing, explore every alternative. Can you get a cosigner? Will a subprime lender give you a better deal? Is there a reliable car you can pay cash for?

The convenience of a BHPH loan can be tempting, but in most cases, it should be your last resort, not your first stop.

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