Is Buy Here, Pay Here Financing Right for You?

August 25th, 2017 by

A woman in a white sweater is shown holding up fanned-out cash against an orange background.

Let’s be honest – is Buy Here, Pay Here financing the best possible way to buy a car? No. The best way to buy a car is to hand over enough cash to foot the entire bill of sale. However, very, very few among us have that option – even people with excellent credit still may not have enough money set aside to pay for their car in cash. And for those of us with credit that is anything less than excellent? Well, unfortunately, our options are a little more limited, which is why working with a reputable dealer who uses Buy Here, Pay Here financing can actually be a great way not only to acquire your new car, but also to build your credit back up. How does Buy Here, Pay Here financing work and what are the major pitfalls you need to be aware of? Read on to learn more about this unique way of purchasing your next car.

When Having a Car is a Need, Not a Want

For the vast majority of people, not having a car is just not feasible if you want to get ahead in life. Unless you live in a major, walkable city, there are very few other ways to commute to work. And if you can’t get to work, how are you going to make and save money? This is the sad cycle we often run into when people are looking to finance a car with poor credit. Of course, these people are not bad people – although often they feel very embarrassed about their situation. These are people who need a break – just a little leg up in order to start being able to put money aside, pay off bills, and increase their credit score. When used correctly, Buy Here, Pay Here financing can help put an end to the struggle of trying to make ends meet.

Here’s how it works: typically, a car loan is financed by a bank or another financial institution. With Buy Here, Pay Here financing, your loan is financed by the dealership itself. Why is this a good thing? Because the dealership has more flexibility to work with clients who have poor credit, which means there is a very good chance that a Buy Here, Pay Here dealership will be able to get you in a car that perfectly suits your needs, all without the stress and worry that you’ll be rejected for a loan.

How Does Buy Here, Pay Here Financing Benefit You?

Obviously, the biggest benefit to using Buy Here, Pay Here financing is that it helps a dealer get you into a car whereas that might not be possible if you were to finance through a bank, credit union or other financial institution. Of course, once you have secured the financing and are driving away in your new-to-you-car, a whole world of possibility opens up. Perhaps you’ll be able to find better employment opportunities now that you have a reliable set of wheels, enabling you to make more money and pay down some debt, which in turn will boost your credit score… so the next time you shop for a car, you may be able to finance it in a more traditional manner – or maybe you’ll even be one of the lucky few who actually can buy their next car all in cash! Who knows? The opportunities are endless, but they start with getting a car via Buy Here, Pay Here financing.

There’s another big benefit to keep in mind with Buy Here, Pay Here financing. Think about this – at the same time that you’re using your new car to make positive life and career choices, you’re also going to be paying off the Buy Here, Pay Here loan… which means your credit score will start going up. If used correctly, Buy Here, Pay Here financing can be the first step in launching a positive cycle that will see your credit score rapidly start to rise, which means the next time you shop for a car, you won’t have to worry about the rejection that poor credit brings. Just make sure to confirm with whatever Buy Here, Pay Here dealer you end up doing business with that they actually do report your on-time credit payments to the credit bureaus – you don’t want to to have a history of perfect on-time payments and never actually receive credit for them. Better yet, track your credit score yourself using a free tool such as Credit Karma. It’s a great tool for motivating yourself to make on-time payments and you’ll be amazed at the gratification you feel as your credit begins to go from poor to excellent in no time at all.

Keep in mind, your success using Buy Here, Pay Here financing is not just the dealership’s responsibility. There’s a reason that Buy Here, Pay Here financing has a questionable reputation, and that’s because of the huge percentage of people who finance their cars using Buy Here, Pay Here who then turn around and default on their loan. It’s important to realize that because the dealership is taking a risk on you and your shaky credit, they are going to attach higher interest rates on the loan than you would typically see on a loan financed through more traditional avenues. Sometimes the interest rates are in the double digits, and it is critical that you know exactly what you’re getting into if you decide to go the Buy Here, Pay Here route. Find out your monthly payment and be sure you can cover the bill before you sign on the dotted line. Just as Buy Here, Pay Here financing has the ability to help you get your life back on track when used wisely, it also has the ability to backfire on you and leave you in a worse financial position than you were originally.

Choosing the Right BHPH Dealership

When we talk about Buy Here Pay Here financing, we tend to use a lot of generalizations as we discuss BHPH dealerships. This might give the impression that all BHPH dealers are the same, and they all offer the exact same experience for you as a customer. In reality, however, there can be significant differences between what you find between one dealership and another, even though both might offer BHPH loans and guaranteed financing to help out people with bad credit. Here are some things you should keep in mind and consider when you are looking to find the right dealership.

Dealership Reputation

This can be a tricky thing to nail down, but it’s worth the time and effort necessary to figure it out. You want to choose a dealership, no matter what kind of financing you’re looking for, that has a good reputation for treating customers fairly and focusing on their needs. This is even more important if you’re looking for Buy Here Pay Here financing since the dealer is going to handle pretty much every aspect of your car-buying experience. Look for reviews online, talk to family and friends, and ask coworkers to find people who have shopped at different dealerships and get their opinions on which ones offer the best customer service.

A row of cars is shown at a car dealership.

Large Inventory – Reputable

There are two reasons you want to choose a BHPH dealer with a large inventory, starting with the fact that it can help ensure you pick a reliable and reputable dealership. A dealer that has been around for decades, with hundreds of vehicles for you to choose from, is going to be a much bigger part of the community than one that just popped up and has a couple dozen models for sale. You want to choose a dealership with roots in the area where you live because then they have good reason to make sure you’re happy and maintain a positive reputation.

Large Inventory – Selection

The other reason you want to look for a BHPH dealer with a large inventory is to ensure you have a great selection of vehicles to choose from. This is true for any kind of car-buying situation, but it’s even more important when you’re looking at Buy Here Pay Here financing. With a BHPH loan, you work backward. First, you figure out what kind of loan you can get, and then you look at vehicles within that budget. A large inventory means you’ll have more options within what your loan allows for, giving you the freedom to find what you need.

Dealership Location

The location of a dealership can always be an important issue since it’s often easiest to get to one that’s close while you’re shopping for a vehicle. You might need to make several visits when you’re trying to find the right car, so a nearby dealer is going to make your life easier. With BHPH financing, you’ll often need to make payments in person at the dealership, sometimes every couple of weeks. Choosing a dealership that is close to you will make this much easier – remember that you’ll be paying off your vehicle for several years, so this is a long-term consideration that you really shouldn’t overlook.

Things to Look for in BHPH Financing

In the same manner that different Buy Here Pay Here dealerships can be very different in regards to the kind of experience you get, they can also offer very different BHPH loans. On the surface, they might seem similar since they’re all loans meant for people with poor credit, but the details can vary significantly. These differences can have a big impact on not only how much money you pay but your overall experience and how well a BHPH loan sets you up for future success. Before you sign any loan agreement, be sure to look at these terms and conditions and make sure they will really work for you.

The Interest Rate

This might go without saying, but we’re going to say it anyway: one of the most important factors when considering any kind of loan is the interest rate involved. The higher the interest rate, the more money you’ll pay back in addition to the principal of the loan itself. BHPH loans are known to have higher interest rates than other types since they’re for higher-risk customers with bad credit. There’s a big difference between a loan with 12% interest and one with 18.5% interest, however, so “high interest” can mean very different things.

Payment Schedule

You want to figure out a couple of important things about the payment schedule for a loan, beginning with how long it will take to pay back. The longer the term of a loan, the more you’ll pay in interest – so the shortest loan duration that you can afford is best. You should also look to see how often you’ll need to make payments. Some loans will have monthly payments, while others could require a payment every two weeks. Finally, look at details regarding the possibility of early pay-off. Some loans will let you pay the remaining balance early while others won’t, so consider this before you accept a loan.

Payment Amounts and Total

Always look at what your actual payments will be, both for individual payments and the overall amount by the end of the loan. Obviously, you want the lowest total payment possible, though that depends on a number of factors. It’s very important that you look at how much you have to pay each month or every two weeks and use this information to figure out if you can really afford the loan. Make sure you know your budget and you’re realistic about the kinds of payments you can afford, and only accept a loan that you can actually pay back.

A red toy car is shown on a stack of money at a dealership that does buy here, pay here financing.

Payment Details

Speaking of payment, be sure to look at the details of how you’re allowed to make payments for the vehicle. Some dealerships require BHPH loans to be paid in-person at the dealer, while others might allow you to pay online. You may need to pay in cash every time, or checks or credit card payments could be accepted – it all depends on the terms of the loan and the BHPH dealership you’re working with. It’s also possible that this can change: they might require cash payments the first year, with online payments allowed after that as long as you make all your payments on time. Be sure to look at these details and have a realistic plan for paying off your loan.

Late Payment Penalties

This is incredibly important: look at what happens if you’re late on a payment. Some BHPH dealerships will give you a few days of wiggle room, while others might start repossession procedures the day after payment is due. Be realistic and figure this out before you agree to a loan – you might plan on making every payment on time, but life gets messy. Look at penalty fees and what kind of a window you have to make a payment before they repossess the car.

Payment Reporting

One thing that’s very easy to overlook but so important is whether the dealership you work with reports your payments to the major credit bureaus. Paying off a BHPH loan is a great way to rebuild your credit, but only if the dealership actually makes an effort to report your payments. You want to choose a dealer that reports your payments like we do so that your credit score will improve over time as you pay off your loan. Just be sure to make your payments on time to get the full benefit of this.

Is Buy Here, Pay Here Financing Right For You?

In order to find out if Buy Here, Pay Here financing is right for you, you need to ask yourself a few key questions. First of all, are you sure that your credit is poor? It may be worth your time to see if you can secure a loan through a bank or other traditional financing center first. If you are unable to access financing through those institutions, then yes, you should consider Buy Here, Pay Here financing.

The next question you need to honestly answer is – will I be able to make my payments on time, every time? If you feel as though the extra payment will be a burden on you or that there is a chance you will default on the loan, then you should avoid financing of any kind until you are in a more stable position. Do not add more stress to your life by borrowing money that you won’t be able to pay back. Do not go to a Buy Here, Pay Here financing center if you already know that there is a good chance you’ll end up missing payments. However, if you feel that you’re ready to take on the responsibility of meeting your payments on time and in full, then go ahead and proceed with Buy Here, Pay Here financing.

While it’s true that there are shady dealerships who use Buy Here, Pay Here financing in order to take advantage of those people in vulnerable or precarious financial situations, by doing a little research, following the above guidelines, finding a reputable dealership and being responsible with making your on-time payments, Buy Here, Pay Here financing may be the first step in getting you into a new car and ultimately overcoming your poor credit history.