What Does “Buy Here Pay Here” Mean?
Many car shoppers don’t realize that many dealers use 3rd party lenders to offer financing to their customers. A bank with whom they work, for instance, may approve a car buyer’s auto loan at a 7% interest rate, and then the dealer will charge his customer 8% and pocket the additional profit.
Buy Here Pay Here (BHPH) car dealers, on the other hand, extend credit directly to their customers, and their customers make their payments directly back to them. Sometimes payments are weekly or bi-weekly instead of monthly. In most cases, a buy here pay here dealer is able to incur the additional risk of lending straight from their own pocket because they have the legal right to repossess the vehicle if the buyer is not making his or her payments. In this way, the vehicle acts as a form of collateral.
Buy Here Pay Here vs In-House Financing: What’s the Difference?
These terms are used interchangeable. Basically, they both refer to financing your car through the dealership rather than an indirect lender.
How Do I Make My Payments?
Typically, you will make your payments to your dealer in monthly, twice-monthly, or weekly installments. Traditionally buy here pay here car dealers required that you come drop off your check or cash at the dealership, though many now offer phone-based or online payment.
What if I Have a Past Bankruptcy, Repo, or Very Bad Credit?
That’s ok! Buy here pay here car dealers cater to the credit-challenged. More than 1/4 of Americans suffer from credit problems, but just about everybody still needs a car to drive to work, school, and the grocery each week.
Will a Buy Here Pay Here Car Loan Help My Credit?
Very often, YES. As long as you make your payments, that is. The FICO credit scoring index will see that you have taken out a loan and are making the payments consistently, and this is one of the most powerful ways to rebuild your score. Make sure to check with your dealer and ensure that they report your payments to the credit bureaus; otherwise, your good credit behavior won’t show up on your credit report.
What if I Can’t Make My Payments?
Speak with your dealer about your options. Oftentimes, if you’re only experiencing a temporary financial hardship, they will allow you to defer payment. Otherwise, they may reserve the right to repossess your vehicle. If you know this is unavoidable, considers a voluntary repossession — although it looks the same on your credit report, it can save you money in repo fees and related charges.
Is a Credit Check Required to Apply?
Yes. That is just how the auto lending industry works. Sadly, many car dealers, lenders, or websites offering “no credit check” offers are simply misleading you with false advertising. If a dealer does not check your credit, they could very well make up for the added risk they incur by engaging in predatory lending tactics or outright scams. Additionally, any dealer who doesn’t check your credit is most likely not reporting your repayment to the credit bureaus, robbing you of the credit-boosting benefits of financing a car.
Will a Credit Check Hurt My Credit?
Not substantially. The newest version of the credit scoring formula takes into account what’s known in the industry as “rate-shopping.” Basically, if you apply for an auto loan multiple times within a 45 day period, these multiple credit inquiries will be treated as either a single inquiry, or ignored altogether. Typically only a single credit inquiry only shaves 5 points off your total score — an amount which takes only about 6 months to recoup. Everybody has to do it.
Do I Need to Watch out for Scams or Predatory Lending?
Yes. Whether you are financing a car through a shady car lot in a bad part of town or the grandest multi-acre mega-dealer, you should be wary of any promises that sound too good to be true. Always check your credit score prior to signing onto any financing rate. Given your credit score, there are ranges of interest rates which you should receive. Anything higher and you may be paying too much. Additionally, please check our Articles section for more information about common pitfalls to watch out for once you’re on the dealer lot.
Is a Down Payment Required?
Many BHPH car dealers offer “no money down” car deals, although a down payment can lower your car payment and ease your budget. Additionally, BHPH dealers are known to be especially receptive to trade-ins, even older vehicles in so-so condition. Trade-ins can often be used a substitute for cash when it comes to a down payment.