These days, there are more ways than ever before for you to buy a vehicle. You can go to a conventional dealership and pickup up a new or used model, you can go through online listings from private sellers looking to sell their old vehicles, and you can even use the internet to find online retailers that sell their vehicles exclusively online. No matter what method you choose, however, financing will always be an important consideration. That is why it is important to understand options like Buy Here Pay Here (BHPH) financing and how it works.
You typically see BHPH options provided by traditional dealerships, though online car sellers can frequently offer this sort of financing too. The basic concept is that a Buy Here Pay Here option is financed by the dealership itself, rather than by a separate lending institution like a bank – so the dealership is the lender. There are some benefits to this as well as some drawbacks, so it’s best to have a good understanding of how it all works and what BHPH financing means for you.
There are a lot of resources out there that you can use to make sure you know exactly what you’re doing when it comes to financing your vehicle. But here are some things you should know before making any purchase.
Thing 1: High-Interest Rates
If you know absolutely nothing else about Buy Here Pay Here financing and how it works, then this is perhaps the most important part of such arrangements: you’re looking at high-interest rates. This may seem somewhat unfair if your only option is a BHPH loan and you’re looking at interest in the double digits, but it is completely standard for any kind of high-risk loan. In general, you’ll need to choose Buy Here Pay Here financing if you have little or poor credit.
From the perspective of any lender, someone with no or low credit is a potential risk to give money to. After all, that person is either an unknown element or someone that has had issues with managing money in the past. As such, a higher interest rate is a way to try to protect their investment and earn back some money lost on other high-risk loans that went poorly.
It’s standard practice and just something you have to deal with when looking at a BHPH loan. With that in mind, you can still compare interest rates from multiple dealerships and sellers. Reputable dealers won’t just hurl the state maximum interest rate at you and call it a day; they’ll be in the double digits, but you can still find a relatively low rate within that range.
Thing 2: Frequent Payments
The second thing you should keep in mind if you’re likely to get a Buy Here Pay Here loan for a vehicle is that you might have to make payments more frequently than you expect. Some dealerships require a payment every couple weeks, rather than monthly payments. Again, this is because BHPH loans are risky for the dealership as a lender, so they require frequent payments to make sure they protect their investment as much as possible.
Make sure you pay attention to all the terms related to repayment, including where you need to pay. Some dealers and online sellers might let you make your payment online, while others will require that you come to the dealership in person to make a payment. You also want to pay close attention to what happens if you are late or miss a payment with a Buy Here Pay Here loan.
In some cases, you might have a few days grace period, while other lenders will start charging late fees immediately. You might only have a couple of days before repossession of the vehicle is ordered – so make sure you know exactly what can happen and avoid any serious repercussions. All of this information will be clearly indicated in any paperwork you need to sign, so read over it all carefully.
Thing 3: Low Down-Payments
Decades ago, Buy Here Pay Here financing typically involved a high down-payment at a dealership. As things have changed, and BHPH options have become more popular among customers who do not have as much cash, this has shifted the other way. A lot of dealerships and online retailers will actually require a lower down-payment for a vehicle purchased through a Buy Here Pay Here loan compared to loans through a third-party financer.
This is part of what makes BHPH financing so attractive for a lot of young people or anyone else that may be in a difficult position financially. A lot of dealerships that offer BHPH financing also tend to take a wider range of vehicles as a trade-in toward a used model, giving you even more options and freedom for getting a car. All of this can vary from dealership to dealership, of course, but it’s something to keep in mind and think about ahead of time.
Thing 4: Easy Financing for Bad Credit
This is arguably the most attractive aspect of Buy Here Pay Here financing for a lot of customers – approval is virtually guaranteed. For a lot of dealerships that offer BHPH loans, you typically only need a home address and proof of a stable income to be approved. This goes hand-in-hand with the high-interest rates, of course, but it has made it possible for people to get vehicles, who would otherwise have been out of options.
A Buy Here Pay Here loan to get a vehicle is a great option if you are just starting out and don’t actually have much in the way of credit, good or bad. A lot of people focus only on the idea of dealing with poor credit, but in reality, having little or no credit can be just as much of a hindrance when looking to get a vehicle loan. Without credit, you’re an unknown quantity to a lot of lenders, which can make it just as hard to get a car loan as it would if you had poor credit.
Thing 5: Possible Good-Credit Building
Whether you have poor credit or no credit history yet, a Buy Here Pay Here loan can be a great way to start building good credit. For this to happen, however, you need to consider two things. First, you have to make your payments on the loan on time – being late repeatedly or missing a payment can have a negative impact on your credit. In fact, having your vehicle repossessed due to a failure to make payments is one way to end up with poor credit in the first place.
Second, you need to make sure the dealership or retailer you get the vehicle from actually reports the payments that you make. Not every dealer and service necessarily reports payments from customers to credit bureaus. If you get a Buy Here Pay Here loan from a dealer and make all your payments on time, but that dealer doesn’t report your on-time payments to a credit bureau, then it won’t positively affect your credit rating.
Before you agree to a BHPH loan or any kind of financing, find out if the business you are working with reports your payments to credit bureaus. This lets you ensure that your efforts to build good credit will not be wasted. Then, the next time you need a vehicle, you’ll have better credit and you’ll be able to qualify for other financing with lower interest rates.