If you’re in the market for a new car, but low on credit and cash, “buy here, pay here” financing could be your only option.
There are both pros and cons to purchasing a vehicle through these types of car lots.
It’s possible to find honest, reputable dealerships if you do your homework before taking out the loan. But, there’s also the possibility that you’ll get talked into a contract loaded with hidden fees and a super high interest rate.
It’s important to educate yourself before making any big financial decisions. Let’s take a look at the pros and cons of financing through a buy here pay here dealership.
Cons of Buy Here Pay Here Financing
High Interest
The biggest pitfall of purchasing through a buy here pay here lot is the interest. It’s substantially higher than what you’d pay at a bank. This is why these lots are usually last resorts for consumers looking to purchase a vehicle.
Hidden Fees
It’s very important to read the fine print on any financial contract. You should review it carefully and look for any hidden fees.
Check your contract for the following:
- administration fee
- price of the vehicle (make sure this is what you agreed to)
- auto inspector fee
- delivery fee
Large Down Payment
Most buy here pay here dealers require consumers to put a large down payment on their vehicle purchase. This ensures that if you default on your payments, the dealership will have already collected enough cash to make it worth their while.
They may also accept a vehicle trade-in as a down payment.
Pros of Buy Here Pay Here Car Lots
No Credit Check
The most attractive trait of a buy here pay here lot is that most don’t run your credit score. This can be a downfall if your credit is good, but a big advantage if your credit is less than perfect.
Improve Your Credit Score
Many of these car lots report your payment history to the credit bureaus. This could be a great way to work on improving your credit score. However, not all do this; be sure to ask your dealer.
Payment Flexibility
You may have a variety of options when it comes to your payment schedule. Some dealerships with “in house financing” will work with you on a payment schedule. You might be able to choose weekly, bi-weekly, or monthly payments.
Buyer Beware
One of my best friend’s parents owns a Buy Here Pay Here lot. This lot has one of the best reputations in town. The owners are honest, fair, and at times, too generous. This has led them to build an incredibly successful business that leaves their customers extremely satisfied and always coming back.
However, this isn’t always the case. You need to do your due diligence and make informed and educated decisions when you decide to shop for a car. Be sure to negotiate on price, check for hidden fees, and only sign the contract if you completely understand what you’re agreeing to.
{ read the comments below or add one }
Buy here pay here lots price vehicles at 2-3 times their value then that’s not including the financing and fees. So in the end the amount you end up paying is of that of a newer model vehicle. Plus they often sell lemons on their lots that break down in less than a year and despite the fact that you are still paying them, it’s as is so you’re responsible for fixing it. So you end up allowing the dealership to come get it just to resell it and you’re out a car and money and have to go purchase another vehicle. You’re better off getting a loan or use your tax refund and pay for car that are posted online by individual owners. That way you can negotiate price and you pay just that price instead of financing and other fees
Not all people with bad credit did that to themselves. My case is a good example, my biological mother got ahold of my ss# back about 6 or 7 years ago and put all kinds of bills in my name credit cards etc. And never paid not one of them. I have tried to get her for fraud but it is very hard to prove, i am not giving up on trying though as she has completly ruined my credit and I have no choice but to try to pay them one at a time. She lives in a different state than me and that is where all the debt was racked up, i did not know until I went to get a new cell phone provider about 2 years ago. So see not everyone with bad credit is sleaze bag none bill paying loser.
I think it’s nice that there are dealerships where you can buy a vehicle and pay for it there. It seems like it would be much more convenient. It makes sense that you would want to keep your eyes open for shady tactics, though!
Thanks for sharing these thoughts. I am about to buy a new car and have been doing research on this topic. I have to say that the payment flexibility is a huge bonus to me. I also have friends who own a small dealership and I can trust that they will be very honest with me.
If I can’t pay cash for a car these days, I don’t buy it. Or, rather, I buy the car in the price range that I can afford—-with the cash I have. Do that, and you won’t ever worry about qualifying for a loan. Borrowing money to buy a car is foolish anyway. Why pay interest on top of your principal for an asset that’s falling in value daily?
I think this article is missing the larger problem of purchasing vehicles. Debt on vehicles is stupid, regardless of the method, interest rate, terms, etc. Here’s a radical idea:
IF YOU CAN’T PAY FOR IT, DON’T BUY IT.
Borrowing money for a vehicle is almost as bad as racking up credit card debt. All new vehicles go down in value like a rock, so even if you borrow at 0% interest, you are still going to lose 40-60% of the value in the first fours years you own it. Staying in car payments your whole life is one of the easiest ways to stay in the middle class and not build wealth. Most millionaires do NOT buy new cars, because they’d rather invest their money on assets that go up in value in the long term, like mutual funds and real estate.
Instead of buying a new car, get on a budget, save up and pay cash for a reliable, 2 year old or older used car.
Unfortunately, is it the weak and the poor people who often buy cars in this way? Banks should instead help their own weak clients to a better economy by giving them a credit loan for a car. They win long term.
Most of these dealers are sleaze bags, preying on the less fortunate and un-informed and desperate. They may be the only resort for those with bad credit, but they are worse than loan sharks when it comes to interest rates. They don’t really mind if you stop paying down the road wither. They just come and get the car and sell it to the next victim, I mean, customer.
They absolutely charge high interest rates. That’s why I think it so important to do a lot of research before making a deal with a buy here pay here dealer. Get recommendations and talk with different dealers.
There really are some genuinely good people who own these types of businesses that will help their customers out and work them on interest rates, payment options, and down payment amounts.
Steve,
I understand your perceived frustration with BHPH dealers and their interest rates. However, put yourself in their shoes. If you offer someone with terrible credit that has a history of not paying their bills would you even offer them a loan? There are tradeoffs based on poor credit and in these instances it’s a higher interest rate due to the higher risk customer. Simple economics my friend.
the dealers are sleeze bags?? the person putting up their own money to help get someone into a vehicle who 9 out of 10 times don’t pay any of their bills?? if you ask me the customer is a sleeze bag if they paid.their bills they could go get a normal loan. and they bhph people will fix the car more offten than not another keep.getting paid and they have to ask for higher than prime interest rates to make up for the person who surprise surprise didn’t pay their bill ill! so stop calling the small family business a sleeze bag for going out on a limb and loaning someone with a 400 credit score their own money to help them get a vehicle shoot most of these people’s own family won’t lend them money because they know they’ll get screened. I find it people have enough nerve to call these dealers sharks wake up and realize just who their lending too.and just who else wouldn’t help them at all!
I think it depends. If you have bad credit but need a car badly, then a buy here pay here may be your only option.
It is definitely the only options for some people. Regardless people still need to make sure they aren’t getting ripped off. There are good buy here pay here dealers out there.
I’m sure there are some good ones out there, but I’ve always been leery of these kind of dealerships. It may be a misconception on my part, but I would imagine they wouldn’t be very good to deal with if there were any issues at all with the car.
I understand people being leery on these kinds of dealerships. They do often prey on people in unfortunate circumstances, but that’s not always the case.
My friends family who owns one of these dealerships does fix peoples cars. He gives them a 100% warranty for a set time period and then splits the cost 50% after the first warranty expires.
I do think you have to do a lot of research and find a reputable dealer you can trust. Personal recommendations are usually the best.
Such good advice! I don’t think we’ll be in the market for a new car anytime soon, but these are all great tips!
Thanks, Cat.