Exploring Buy Here Pay Here Car Dealerships: What You Need to Know
When it comes to car shopping, there are a plethora of decisions to be made. From choosing the right vehicle to figuring out the financing, the process can be overwhelming. While most people are familiar with major franchised car dealerships and used car lots, there is another option worth considering: buy here pay here car dealerships. Despite the stigma surrounding these establishments, there is more to them than meets the eye.
How do Buy Here Pay Here Car Dealerships Work?
Unlike traditional car dealerships, buy here pay here (BHPH) car dealerships take a different approach to financing. Instead of submitting a credit application to a bank for approval, BHPH dealerships finance the vehicles in-house. This means they can offer credit to borrowers who might not be approved through traditional channels. These roadside dealerships often advertise bad-credit car loans and other enticing offers. While you’ll still need to provide proof of income and other documentation, your credit may not be a determining factor.
The Pros and Cons of Buy Here Pay Here Car Dealerships
BHPH dealerships can be a viable option for individuals with bad credit or lower incomes who need a reliable commuter vehicle. However, it’s important to consider the drawbacks. Studies have shown that the vehicles on BHPH lots tend to be older and of lower value compared to those found at traditional used car dealerships. The average price of a vehicle at a BHPH dealership was just over $7,000 in 2018. Additionally, the age and mileage of these cars can make them more prone to issues and expensive repairs, offsetting any initial cost benefits.
Understanding Buy Here Pay Here Financing
Since BHPH dealerships act as their own lenders, they often have higher interest rates than traditional lenders. In fact, the average interest rate for BHPH loans reached 20 percent in a 2018 study. This is nearly four times the rate of conventional four-year loans and more than six times the average credit union loan rate. Along with high interest rates, BHPH dealerships may charge additional fees and costs, driving up the total price of the vehicle. It’s no surprise that over a third of BHPH car buyers default on their loans, making this business particularly risky for lenders.
The Impact on Credit Scores
One concern many buyers have is how BHPH dealerships affect their credit score. Unfortunately, some dealerships may not report on-time payments to credit bureaus, even if the car is paid off in full. This means your payments may not improve your credit score. Furthermore, BHPH dealerships often have less flexible payment options compared to larger banks. They may not offer automatic withdrawals or online payment systems, which can be inconvenient for buyers.
Exploring Alternatives
If the risks and drawbacks of BHPH dealerships give you pause, there are alternative options worth considering. If possible, paying cash for a used car is an excellent way to avoid the hassle and expense of a loan. Buying from a private seller can also help you avoid dealer fees, although you may still need to pay taxes and other costs. Shopping around for reputable lenders who specialize in auto loans for individuals with less-than-perfect credit is another viable option. While you may face slightly higher interest rates, they will likely be more reasonable compared to those offered by BHPH dealerships. Additionally, having a co-signer can improve your chances of getting approved for a loan, but it’s crucial to ensure they understand the potential risks involved.
Final Thoughts
While buy here pay here car dealerships offer a relatively straightforward way to purchase a car, it’s important to approach the process with caution and conduct thorough research. Before making a commitment, ask for a pre-purchase inspection and take the time to test-drive the vehicle. By going into the purchase well-informed and prepared, you can have a better overall experience. Remember to explore all your options before deciding on the best course of action for your individual circumstances.