What Is a ‘Buy Here, Pay Here’ Dealership?

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For most of us, purchasing a car requires some form of financing. It’s hard enough to come up with a sizable down payment, let alone the tens of thousands of dollars it would take to pay cash for a car.

BHPH sign

But not all car dealership financing options are created equally. Knowing what you’re getting into ahead of time can be the key to avoiding sky-high interest rates and over-borrowing.

In this post, we’ll discuss “buy here, pay here” or BHPH car lots. We’ll explain how they differ from other types of vehicle financing. We’ll start by talking about how buy here, pay here financing works. Then, we’ll move on to discuss the drawbacks and benefits of this financial option.

BHPH car lots make purchasing a vehicle a more accessible option for borrowers with bad credit. However, buy here, pay here loans often come at a high cost. This means they should be approached with extreme caution.

So, ready to learn what you need to know to make an informed car-buying decision? Read on!

What Does ‘Buy Here, Pay Here’ Mean?

At a traditional car dealership, financing is done through a separate financial entity, or bank. These lenders provide fast, on-site loan approvals in conjunction with dealerships.

If approved, you’d be making monthly payments to the bank in question. It’s often a large franchise like Chase or Bank of America. This is known as “dealer-arranged financing“. It’s a convenient option, but you may also venture off-site to seek a car loan from these companies directly.

At a buy here, pay here dealership, you’re getting a car loan from the dealership itself and you’ll make your car payments directly to the dealership.

This kind of financing is convenient and may offer terms more lenient than those you’d likely find at a standard financial institution. That’s what makes BHPH financing attractive to borrowers with bad credit. It’s also ideal for people who may have little cash on hand to put toward a down payment.

Drawbacks and Benefits of Buy Here, Pay Here Dealerships

There are both drawbacks and benefits to buy here, pay here financing. Here are some brief considerations to keep in mind when deciding whether a buy here, pay here dealership is right for you.

Benefits

  • Poor credit history may still be acceptable. Buy Here, Pay Here car dealerships often extend car loans to borrowers who have little or no credit history. Some BHPH dealers may not even conduct a credit check.
  • Small down payment options are available. Buy here, pay here dealerships frequently allow borrowers to purchase a vehicle with very little (i.e., $500), or even no, money down upfront.
  • Parsimony of process. When you purchase from a buy here, pay here dealership, the car-buying process is simplified. You shop for, negotiate, and pay for your vehicle, all with the same company and customer service team.

Drawbacks

  • High interest rates. In-house financing may cater to borrowers with little or no credit. However, auto loan rates can be much higher than the ones you’d find at third-party lenders, according to the CFPB.
  • You could end up borrowing more than the vehicle is actually worth. Traditional lenders typically limit the amount they lend based on a vehicle’s stated worth. It’s a figure known as the “buy rate.” But dealerships have the discretion to create loan agreements for higher totals. This often inflates the figure to compensate for their part in handling the financial transaction. This means you could end up overpaying for your vehicle not just in interest but in principle.
  • The loans may not help build your credit portfolio. Diversifying your credit accounts and demonstrating timely payments can help you build up your credit score and history. It allows you to get better deals in the future. But they may not report to the three major credit bureaus. And that means the payment history won’t be on your credit report. So, you’ll miss the opportunity to use your car purchase to improve your credit scores.
  • The dealership may have installed tracking devices on the vehicle. These are considered “high risk” loans for the dealership. Some firms will install tracking devices to keep tabs on the car’s location in case they need to repossess the vehicle.

Alternatives to Buy Here, Pay Here Financing

“Buy here, pay here” dealerships often attract customers who are already in a bit of a financial bind. And the steep terms of these deals can exacerbate existing money problems.

But even if you have bad credit, it’s possible to find alternative auto financing that offers much fairer terms and lower interest rates.

“In general, dealers and lenders are not required to offer the best rates available,” says the CFPB. “Even if you have poor or no credit, it may be worth it to see if there is a bank, credit union, or another dealer that is willing to make a loan to you.”

Online Lenders

To learn more about bad credit auto loans, there are plenty of reliable online auto lenders. You should compare terms from multiple locations before you make a purchasing decision.

Bad credit or a low down payment will lead to higher interest rates and harsher loan terms, even if you seek financing off-campus. But often, these agreements will still be a better deal than the ones you’ll find at BHPH dealerships.

Banks and Credit Unions

You can also check with your local bank or credit union about getting a traditional auto loan with low credit scores. Banks and credit unions typically report to the three major credit bureaus. That gives you an opportunity to improve your credit score for future transactions.

Get a Cosigner

You can apply for an auto loan with a cosigner at most traditional lenders to increase your chances of getting approved. If you fail to make your payments, a co-signer acts as a backup. This minimizes the lender’s risk.

Just remember that both you and your co-signer will be equally responsible for paying off the car loan. So, if payments are not made on time, it can cause a strain on your relationship with the cosigner.

Improve Your Credit Scores

Consider building your credit before shopping for a new car if you don’t need one right away. Take a look at your credit report and address any issues that are affecting your credit score. Here are twelve ways to improve your credit if you currently have poor credit.

How Can I Find ‘Buy Here, Pay Here’ Car Lots Near Me?

If you’re still interested in pursuing in-house financing at a BHPH dealership, you can find them in your area by searching online for the term and your zip code. Auto Trader also offers a tool for finding them. It includes filters for your preferred down payment, regular payment, and payment frequency.

Many family-owned BHPH dealerships and franchises offer these types of loans to their prospective clients. But again, it’s important to remember that you have many options when it comes to financing your new vehicle. And chances are, most of them will offer you better terms than an in-house auto loan at a “Buy Here, Pay Here” dealership.

Jamie Cattanach
Meet the author

Jamie Cattanach is a freelance writer whose work has been featured at Fodor's, Yahoo, SELF, The Motley Fool, Roads & Kingdoms, and other outlets.