As much as I love cars and shopping as separate entities, I bristle at the thought of car shopping. What should be fun and exciting is often overwhelming and tedious. More than the overly solicitous (read: aggravating) sales team, the financing makes me nervous and often, nauseated. Having your financial health reviewed and, let’s face it, judged by some guy in a bad suit is the pits.
This can be especially uncomfortable if life has thrown you a few curve balls and you’re in a bad spot with your credit. Let me save you some angst and take you through an option that can help you out in a jam and, if you play it right, even get you back on your financial footing.
Consider the scenario of the Cincinnati “buy here, pay here” car lots, an avenue for those who need a boost to get behind the wheel.
Allow me to explain…
The Basics of “Buy Here, Pay Here”
If you suspect that you will likely be denied a loan from a traditional lender like a bank or credit union, you might want to consider a “buy here, pay here” car lot.
Well, with the “buy here, pay here” dealers, not only are they selling the car directly to you, they are financing the loan terms. In other words, you’re basically approved no matter what.
However, there are some drawbacks to this scenario – aren’t there always when we need a break? And, it’s important to check on that suspicion of yours before you approach a BHPH car lot. It’s not enough to assume that you’ll be denied a bank-backed loan. You need to do some research and check it out.
Crunch Your Credit Numbers
Before you so much as look at a single car at the BHPH car lot, check your credit score first. I know. You’d likely rather juggle knives, but tough. Bite the bullet and consult the three primary credit agencies: Equifax, TransUnion, and Experian.
Every year, each agency is required by law to provide you with a free copy of your credit history and score. I’ll explain the scores in a minute, but first, make sure you review your history, don’t just check the score and move on.
But why, Silvia?
Well, kids, people make mistakes (as you well know), so you’ll want to comb through your credit history and check for any inaccuracies which could be negatively impacting your score for no reason.
Once you’ve reviewed for errors, make sure you understand what your resulting score means.
Here’s the gist:
Scores between 740-850 are considered excellent. “Good” falls between 680-740; “Fair” or “Acceptable” is considered 620-680, and then we enter the dodgy territory. Credit that falls in the 550-620 range is called “Subprime,” while “Poor” credit is anywhere from 300-550.
Below that, find yourself a Schwinn.
But, if you’re in the Subprime or Poor zones, check out the BHPH option.
BHPH to the Rescue?
Obviously you can’t rebuild your credit if you don’t have transportation to get to and from work. So, this is likely your best alternative, but you need to tread carefully.
Speaking of work, the one thing you absolutely need when it comes to securing a BHPH loan is evidence of reliable income, as well as proof of residence, so they can come and get you if you fail to make your payments. Kidding. Kind of…
While providing proof of income and residence seems painless enough, you’re going to feel the sting when you get slapped with the interest rate the BHPH feels you deserve. Take a deep breath and expect to be presented with a figure in the double digits.
Just to give you some context, loan applicants who enjoy good credit will generally be offered interest rates ranging from three to four percent. Average credit will get you five or six percent, but once you enter the subprime realm, interest rates increase between seven and thirteen percent, if not higher.
BHPH car lots make their money off high-interest rate loans because they can. So, between their drive to turn a profit and your unfortunate credit score, you’ll be susceptible to an even higher interest rate, hence the double-digit prediction. Often, the loan rate is so high, the BHPH car dealer profits off of the loan as much as the actual sale of the car itself.
Make sure that you’re shopping at a BHPH dealer located near your home or job. In most cases, you’ll be expected to make payments directly to the dealer, in person, on either a weekly or biweekly basis, rather than mailing in a monthly check, as you would with a conventional loan from a bank or credit union.
A few BHPH car lots do accept payments online or over the phone, but as a general rule, you’ll be expected to turn over your payment in hand at the dealership.
Something to keep in mind is the fact that the phrase buy here, pay here car lots is increasingly outdated. In fact, most dealerships that sell new and used car inventories, extend BHPH financing options to their customers. But, this might be expressed via different terminology, like “Financing Available,” or “We Finance.”
Since you’re already trying to negotiate a disadvantageous credit situation, you’ll want to pursue your BHPH financing at a franchised dealership, featuring a major automotive brand, like Chevrolet. Does it advertise helping with credit, or offer convenient financing plans? If so, you’ve likely found a reliable, established BHPH car lot.
Flipping the Script on Car Shopping
When you purchase a car from Cincinnati buy here, pay here car lots, don’t expect a whole lot in the way of selection or options.
Rather than shop around for the car you want, as you would under more favorable financial circumstances, with a BHPH purchase, the dealer will show you the cars that he or she believes you can afford after your financing has been established. In other words, your loan terms will be determined first, and then the cars whose price points reasonably fit those terms will be presented as your options.
If you currently have a car, ask your BHPH dealer about putting your old car towards your “new” (read: new to you) purchase. Lots of BHPH dealers are always looking for older cars because they can sell them easily.
After you have settled (emphasis on settled) on your “new” car, take the time to ensure that you completely understand the financing terms of your loan, particularly regarding late payments.
Ask whether the BHPH dealer has a grace period, and if so, what is its duration?
Once you’ve confirmed the terms and feel confident that you understand what is expected of you, then you’ll be on your way in a new set of wheels.
Just make absolutely sure that you make your payments on time. Failure to do so will only cause additional damage to your credit score. But, like most deals, a BHPH loan is really a double-edged sword.
If you DO make your payments on time, you really can rebuild your credit so that at the end of the loan term, you might find yourself on firmer financial footing, able to pursue a loan with a lower interest rate.
So, keep an open mind when you approach Cincinnati buy here, pay here car lots, but make sure you’ve done your homework before you start your shopping.