If a few blemishes on your credit report are holding you back from getting the auto loan you need, then a Buy Here Pay Here car dealer may be an option for you. These types of dealers provide financing right on the lot; you pay for your car in monthly installments in the same way you would pay a traditional finance company, and if you default on your loan, the dealer can repossess the vehicle and sell it to recoup any losses. Let’s run down what you need to know about Buy Here Pay Here financing for your next car loan.
Buy Here Pay Here dealerships can be a godsend if your credit is less than perfect and you are in dire need of transportation.
Some advantages of Buy Here Pay Here car lots include:
- Creditworthiness is not an issue. Bad credit, divorce, bankruptcy, and other issues with your credit can make it hard to obtain a traditional car loan with an auto finance company, bank or credit union. Buy Here Pay Here financing is available regardless of your previous credit performance. Many lots do not even check the applicant’s credit.
- Approval is nearly instant. In most cases, you can apply for financing and get approved (and be in your car) the same day.
- Some report to the credit bureaus. Some, but not all, Buy Here Pay Here car dealerships report your positive payment history to the credit bureaus. This can go a long way towards rebuilding your credit so that you can qualify for traditional lending in the future.
- Nearly everyone is approved. Because credit doesn’t factor into the equation, nearly all applicants can be approved by a Buy Here Pay Here lot. The basic requirements are proof of identity and a steady and verifiable income source. Usually, pay stubs or a copy of your previous year’s tax return suffice for proof of income.
- Payments are flexible. Although it varies between lots, most offer you the option of weekly, bi-weekly or monthly payments, which makes it easy to work your car loan into your budget based on the frequency and interval of your payday.
- Most take trade-ins. Because they deal in used cars, most Buy Here Pay Here lots also take trade-ins, and some also let you use your trade-in as your down payment to reduce the amount of cash you need to come up with upfront.
- Some cars are under warranty. If you opt for a newer model vehicle, you may be able to find one with a warranty. Some lots also offer a warranty period on the cars they sell. Beware of buying a car “as is,” since this means that any problems the car has, you are stuck with fixing once you get it off the lot.
Buy Here Pay Here financing is obviously not the most attractive or ideal choice for most borrowers, but for the borrower with bad or damaged credit, it can be a viable one.
Some distinct disadvantages of Buy Here Pay Here financing include:
- A down payment is typically required. Many Buy Here Pay Here dealerships ask for a down payment that is equivalent to a percentage of the car’s purchase price. This ranges from a few hundred dollars to a few thousand dollars, depending on the vehicle you choose to purchase.
- Interest rates on Buy Here Pay Here loans can be brutal. When the dealership takes a chance on borrowers with bad credit, they are assuming a level of risk that doesn’t exist with credit-worthy borrowers. You’ll pay for that risk in the form of inflated interest rates that may top off around the 25 percent mark. This can add thousands of dollars onto the purchase price of your car over the life of your loan.
- Grace periods are minimal. Traditional finance companies offer a generous grace period for late payments; some even allow you to get several payments in arrears before they repo your car. Not so with Buy Here Pay Here lots. Most allow 10 days or less on your first missed payment before they initiate the repossession process. Many dealers also place a GPS tracker or engine-shutdown device on the cars they sell, making it easier to find you if your payment is late.
- You get little bargaining power with a Buy Here Pay Here sale. Haggling over price is usually not an option, since the dealer will tell you how much you qualify for and which cars are within your budget. There’s little leeway for negotiating a better price like you could if you qualified for bank financing.
- You may have to make your payments in person. Some Buy Here Pay Here lots only take cash payments, which can be an inconvenience if you’re accustomed to paying bills online.
- Vehicle choice is usually limited. Although there are some mega-sized Buy Here Pay Here lots out there, many are tiny one-man or family operations.
Because of this, the vehicle selection available is limited. Keep in mind that the vehicles available for purchase will also be limited by how much the dealer is willing to extend to you in credit.
Do Your Research
Before you shop for a Buy Here Pay Here car, be sure to your homework, since there are unscrupulous dealers out there. Check for reviews of the dealership, ask friends and co-workers for referrals to dealerships, and always have a licensed mechanic check out the car you plan to buy before you agree to buy it.
As you can see, there are a number of advantages and disadvantages to purchasing a vehicle from a Buy Here Pay Here car dealership. One thing’s for certain, however; Buy Here Pay Here is going nowhere. There are more than 33,000 dealerships that offer this type of sub-prime financing to car buyers, and more than 2.4 million people took advantage of Buy Here Pay Here financing in 2016. For a certain type of borrower, the Buy Here Pay Here model makes absolute sense and is the fastest and easiest route to getting behind the wheel.