If you have a really low credit score, you may have considered one of those dealerships that advertises “buy here pay here” financing. This is typically a service offered by small, independent car lots that cater to people with severe credit problems, often as a result of:
For a variety of reasons, you are often better off getting a car loan with a traditional auto lender.
What Makes Buy Here Pay Here (BHPH) Car Lots Different
Most dealerships either arrange your financing through a third-party lender, or they approve your credit and sell the resulting loan contact to a third-party. Buy here pay here dealerships, on the other hand, provide financing directly. This is why they often advertise “no credit checks” or “your job is your credit.” Since they are not reliant on any off-site lender, they have more flexibility in terms of who they approve to finance. This might sound good, but there are a wealth of drawbacks to this type of arrangement.
The Drawbacks, Pitfalls, and Dangers of BHPH
- Exorbitant Interest Rates. If you have deep subprime credit, defined typically by a score in the 500’s or worse, then you can expect to pay an elevated rate of interest. However, BHPH dealers take this to the extreme. Depending on what’s legal in your state, rates of 20%+ APR are not uncommon.
- Exorbitant Down Payments. If you are an industry insider, then you know that BHPH dealerships often charge a down payment commensurate with the wholesale value of the vehicle. Basically, that means they recoup their initial investment simply from your down payment. That means you are paying a majority of the vehicle’s actual value in cash.
- Weekly Payments. Typically, your payments will be owed weekly, not monthly, and you may be required to visit the dealership to drop it off each week. This makes it easy to miss a payment, which often leads to nearly instant repossession.
- No Credit-Building Potential. It costs money for creditors to report payments to the credit bureaus, and most BHPH dealers, as small operations, eschew the whole process. That means you could make every payment on your vehicle on time, in full, and have nothing positive to show on your credit report.
- Only Used Vehicles. Not only will you be forced to purchase a pre-owned vehicle, chances are it will be a fairly high-mileage vehicle without a warranty.
For these reasons and others, it’s best to explore other avenues of buying a car before resorting to a BHPH dealer.
Subprime Auto Loans Don’t Equal BHPH Loans
Just because you have bad credit doesn’t mean BHPH is your only option. In fact, 1 out of every 4 non-BHPH vehicle loans funded in the United States each year are for borrowers with subprime credit. Finance companies are making these loans, not BHPH dealers. Auto finance companies must follow regulations that don’t apply to dealerships that do in-house financing, and you can expect:
- More Competitive Rates
- Full Credit Reporting
- New and Used Vehicles
Here at Motive Auto Finance, we work with many dealers and lenders who cater to subprime consumers. Just apply online, and we’ll get to work matching you to one willing to fund your loan.