All it takes is a few bad apples to spoil the bunch, especially when those bad apples are unscrupulous buy-here, pay-here dealerships. That’s why it’s up to consumers with rocky credit to carefully vet any dealer before signing a buy-here, pay-here loan.
- First, it’s important to understand how the buy-here, pay-here policy works:
- You go to the dealer to purchase a pre-owned vehicle of your choice.
- You ask about financing options that are reasonable, despite your credit history.
- The dealership explains that they can operate as the lender.
- You sign agreements that give the dealership that role.
- You leave with your new-to-you car, truck, SUV, etc.
This type of arrangement is not unusual, and it streamlines the process for people with lower credit scores who might not be able to otherwise get a vehicle loan. At the same time, every consumer needs to make sure that their preferred dealership is following a few legal and ethical guidelines.
Below are several indicators that the buy-here, pay-here seller is operating on the up-and-up.
Even with fees, your car loan interest rate isn’t above the acceptable state percentage.
Lawfully, a buy-here, the pay-here dealership should never charge you more than whatever the high-range interest rate percent is in your state. However, this doesn’t mean that just because your loan documents indicate the price is less that you’re in the clear.
Some dealerships add monthly, quarterly, yearly, or other fees that essentially increase the annual percentage rate beyond the limit. Not only is this unacceptable for you, the loan recipient, but it is against state laws. Before going to any buy-here, pay-here dealership, get a quick education on the percentage rate rules for your commonwealth.
The dealership adds a starter interrupt device but explains that it will not be used until after a three-week grace period.
Let’s say you miss a loan payment on Tuesday and your car has been outfitted with a device that the dealership can use to basically cut off your use of the vehicle. On Wednesday, you should still be able to operate your automobile.
Basically, you have a 21-day grace period to get your loan in order before the dealership can rightfully deny you the ability to use the car. Any dealership that immediately cuts off your service is skirting the law.
Your dealer has a license to offer buy-here, pay-here.
Some dealerships have their own financing departments and do everything in-house. Others choose to work with a lending institution, such as a local bank. Regardless, the only way they can become legitimate (in the eyes of the legal authorities) buy-here, pay-here dealerships is by becoming licensed.
Always ask to see proof of any licensing before signing any documentation. That way, you’re assured that you’re working with a trustworthy entity and not a fly-by-the-seat-of-our-pants operation.
Someone explains all the terms of the agreement in depth.
As a consumer, you should never feel like you’ve been led astray. From the moment that your dealer begins to speak with you about the contract, you deserve to understand your roles and obligations, as well as the rights of both parties as outlined in the document.
A dealer with nothing to hide will walk you through all your lending agreements, answering your questions easily. You should never feel pressured to make a snap decision, nor should you feel as if making inquiries is “stupid” or “taking up valuable time” for the sales representative. Remember that what you’re signing is a legal contract, and you deserve to know and appreciate what you’re promising as well as what you’re getting.
The price of the car is in line with expected value.
Although you may pay a bit more for a pre-owned vehicle at a buy-here, pay-here lot, the difference shouldn’t be more than double what you would otherwise expect. Do your homework before stepping foot at the dealer’s doorstep to understand the acceptable ranges for the used car or truck you’re considering.
Certainly, the dealership will likely have raised the price slightly to cover their risk. After all, they are in the business of lending to people who have defaulted on payments in the past. Consequently, they may bump up the overall price of the vehicle as a way to protect their interests. Factor this in when negotiating with your sales representative.
Is a Buy-Here, Pay-Here Arrangement Right for You?
- Of course, even if you find a great buy-here, pay-here dealer in your area, you’ll want to see if it’s worth going this route. Some questions to ask yourself include:
- Will you be able to keep up with the payments? If you’re not sure, do you have people in your life who can help out if you get behind?
- Do you actually need a vehicle for your transportation? For instance, if your old vehicle is merely an eyesore but works well, is it better for you to save money and build credit so you can get regular financing options?
- Are you prepared to pay more for the convenience of being able to get a loan despite your bad credit history?
What measures will you put in place to ensure that you don’t overspend each month? Many times, a buy-here, pay-here experience can actually help you gain increased control over how wisely you’re spending your income.
Do you fully understand that if you default on your loan payment that your vehicle will not only be repossessed by the dealership but that you could be sued by the dealer for the remainder of your loan? The money you owe does not go away just because the car is unavailable to you. This is nothing specific to the buy-here, pay-here industry; all financial lenders have the right to sue if you do not pay after signing a legally binding loan agreement.
At the end of the day, having a vehicle is something that may mean the difference between surviving and thriving. Case in point: If you can’t make it to work, your employer will find someone else to do the job and you’ll be unemployed. For that reason, even if you don’t love the idea of going the buy-here, pay-here route, it can make sense. Just be sure that you do your due diligence before agreeing to work with your dealer.