Yes, buy-here-pay-here (BHPH) lots charge interest…lots and lots of interest. On average a BHPH will charge thirteen percentage points more than the prime interest rate. That works out to an interest rate of between 18 and 24 percent on a loan for a car that is over-priced to begin with. In some instances, BHPH dealerships have been known to charge up to 30 percent interest!
Alternative 1: Build Your Credit
The majority of people who think that they need to use a BHPH dealership face one of three obstacles: bad credit, no credit, or limited income. While any of those three can earn you a quick ”thanks, but no thanks” from a large lender, you have options. The first is to overcome your obstacle. The easiest is no credit. You can build your credit score by obtaining a credit card. Even a secured card will be reported to the major credit agencies, boosting your score if you keep your balance under thirty percent of your credit limit. The same will work for a person who has bad credit. The obstacle of limited income can be overcome in one of two ways…obviously, the first is to make more money. Since that is not always possible, you can limit your debt. When a lender looks at your net income, they also look at how much you owe in comparison. If your debt-to-income(DTI) is over 35 percent, you will have a harder time getting a car loan.
Alternative 2: Subprime Finance Company
If you need a car soon and do not have the time to work on your obstacle, there are many specialty lenders who approve loans under non-traditional circumstances on a daily basis. Typically, they are much more heavily-regulated than any BHPH lots, and they charge more reasonable and competitive rates of interest. Unlike a BHPH dealer, they do check your credit. This may seem like a disadvantage, but there’s a big upside: they can help you rebuild your credit, by reporting your payments to the credit bureaus. The quickest way to find such a ender is to look online. When you apply online, we’ll go to work finding you a dealer or lender who can guide you through the process. There are hundreds of dealers and lenders in our network, many of whom are accredited by the Better Business Bureau and can get you approved for the auto loan you need at a rate you can actually afford.