The Advantage of Buy Here Pay Here Financing
More than 25% of Americans have credit scores of 620 or less due to late credit card payments, medical bills, bankruptcies, repossessions, or any of a number of other factors that lead to poor credit.
Most traditional banks, credit unions, and manufacturer finance companies only grant auto loans to consumers with the best of credit. This is especially true in these hard economic times. With minimum credit thresholds for approval, all too often they will take one look at a consumer with bad credit and reject them right off the bat.
To service this market, many dealerships both small and large have begun to offer in-house financing directly for their customers. This means you typically make your car loan payments directly to the dealer, which facilitates a closer relationship between you, the buyer, and your car dealer. Oftentimes this results in you getting a vehicle in better repair that you otherwise would, as the dealer has more at risk having lended you the money out of his or her own pocket.
Although buy here pay here financing was once available only at smaller independent car lots, our dealer network includes many larger franchise dealerships who have begun to offer in-house dealer financing. Additionally, many of our buy here pay here dealers also work with traditional car lenders like banks and finance companies, and after you’ve displayed a history of making your first 6+ payments in full and on time, they will allow you to refinance through a more traditional lender if you so desire.
Rates and Disadvantages
Because BHPH dealers work with consumers on the lowest end of the credit spectrum, they charge some of the highest interest rates you will come across in the auto finance world. How high? That depends on state laws, dealer policies, and other factors. However, rates in excess of 12% APR should be expected, and rates in the vicinity of 20% APR are not unheard of. For this reason, it is important to purchase a vehicle that is fairly inexpensive, as a lot of your payment will be going to interest.
BHPH dealers are also accustomed to dealing with a lot of repossessions. This is just another reason to purchase a vehicle well within your budget, so you won’t be at risk of missing your monthly payment. In summary, there are disadvantages to this form of financing, but it may be the only option if your credit is in bad shape.