You’ve fallen on hard times and you need a car, quick. Transportation to get you back and forth to work, pick up the kids, or go to the grocery store. You went to your bank and they denied your request to take out a loan because of your bad credit score. You tried to find a car dealership or used car lot offering financing for customers with bad credit, but you had no luck. The only option left for a quick fix is a buy here pay here OH dealership, but you are thinking those types are better off left alone.
You have heard some pretty bad horror stories about them. But they all can’t be bad, can they?
The answer to that question, is no. Also, if you’ve already been denied everywhere, else you really don’t have a choice. Just know that not all of these BHPH (Buy Here Pay Here) lots are bad places; on the contrary, you might find that this is exactly the type of place you need.
But, if you are thinking about buying from a BHPH lot, you need to understand some of the differences between these places and other dealerships out there.
What is a BHPH?
A BHPH dealership is a lot where they sell used cars, specifically to those who have bad credit. Look at these places as a safety net. If you have no where else to go, you can still go here. The dealers in these lots are trained to find out your financial situation first, showing you your options second.
While this may seem insulting compared to the Mercedes dealership down the street, the truth is it isn’t. They are just trying to cover themselves. The reason you are there is because you have bad credit and couldn’t get financing anywhere else, and they know this. They are going to be upfront about the financing, which is going to detail exactly what you are getting for the price.
Important note: Some places like this are notorious for tricking you into a bad deal. If you feel uncomfortable during the planning stages of your financing, just walk away. Better to be left hitching a ride to work from your friend instead of losing thousands of dollars.
A “traditional” dealership is going to catch you when you walk through the door and show you your options, because you are showing them you can afford it just buy setting foot in the door. The BHPH lots around your area don’t have that guarantee, especially dealing with bad credit customers.
They want to make sure there customers are going to follow through with payments, hence the upfront financial discussion.
What They Offer
You won’t find any new cars in these lots, they are all used (sometimes more than 10 years old) and typically have high mileage. But, in your situation you don’t need something with heated seats or a sunroof. These cars are a little different than ones you would find at other dealerships, particularly when it comes to the repo process.
With the cars from BHPH dealers, you get a surprise feature: An electronic tracking device! Hey, I didn’t say it was a good surprise. All joking aside, this is a guarantee for them that they will not lose out on the deal. Generally, bad credit customers are at these lots because they couldn’t keep up with their financial responsibility. So, in order for the dealership to protect themselves they will repossess your car if you miss a payment or two.
With these dealerships, you will have a limited selection. Getting the car you can afford, not the one that you want.
Repo, the Name of the Game
They will send the repo man to find your car, and then take it back if you miss payments. This is for two reasons: One, so they do not lose out on the deal you made with them. Two, so they can take your car and pitch it to another customer who comes looking. It sounds cold, but at the end of the day they are a business, and they need to look out for themselves.
Other dealerships might not be so hasty to repo a new car, because you have good credit and they make their profit in a different manner than the BHPH dealerships.
Fun fact: some of these dealers even have ignition shutdown technology installed in the car. No matter where you are, the dealer can stop you dead in your tracks.
How do you avoid a situation like this? Be a good customer! Unless you miss your payments, the good BHPH dealerships aren’t going to repo your car just for fun. The people working in these dealerships don’t make the rules, they are just doing what they are trained to do.
Just because the practice is rigid, doesn’t mean the lenders will be. They know the type of customers they have, and while they might not be sympathetic on the business end, that doesn’t mean they won’t be sympathetic or polite towards you.
The BHPH will offer you a loan that comes right from them, since you had no other way to get a loan. For these dealerships, you will have to return to the BHPH lot in order to make payments on the loan. Generally as frequently as every week, unlike other dealerships who aren’t at such a big risk.
Due to the risk these BHPH dealerships take when lending out cars to the bad credit customers, they need frequent payments. Making you pay weekly is another way of making sure they don’t lose out on a deal. It keeps you on your toes and on time with your payments. They generally do not accept checks, because they have the risk of your check showing up late, or not showing up at all.
The deal you make will also be accompanied by a high interest rate. This is how the BHPH dealerships mainly make their profit. They sometimes charge interest rates on your loan as high as a a credit card, near the 18% range in some places. There is still a down payment, and you should go there being prepared to spend around 20% for one, it varies depending on the car.
The Combined Process
The down payment varies because typically it is what the BHPH dealership bought the car for. Therefore, they set a down payment for the price of the car, which covers what they paid for it. If you prove to be a financially responsible customer, or demonstrate you are trying to be, they give you a loan with a high interest rate. You make your payments on time, and they make a profit off the interest rate. If you don’t make your payments on time, they repo the car and loan it to another customer who comes looking. Not losing anything on the deal because of the down payment, but not gaining any profit.
So, What’s the Difference?
Truth be told, the difference between BHPH lots and traditional car lots is becoming less and less. Some traditional lots out there offer advertisement like “We Finance” which is lingo meaning they have a BHPH option available.
The biggest difference lies in the shopping experience offered. Instead of seeing what you want and then discussing financing, you will discuss financing and then be shown what is available to you. There is also a slight difference in the payment process, mainly the weekly payment of your loan.
The reputation of the BHPH dealerships is also something to be taken into account. There are a lot more horror stories than fairy tales associated with BHPH, unlike the other dealerships. But, not all of the Buy Here Pay Here dealerships are out to get you.