Buy Here Pay Here Loans: What You Need To Know

January 21, 2023 Auto Finance
Buy Here Pay Here Loans: What You Need To Know

Buy Here Pay Here Loan: What It Is

You need to find some form of financing when you're looking to buy a vehicle -- specifically, an auto loan. Dealerships don't generally offer financing and instead work with a network of lenders.

However, there is one exception: buy here pay here (BHPH) dealerships. These are specialized dealerships that can sell you a vehicle straight off the lot and provide financing.

Buy here pay here loans (also known as "no credit check" loans) are a form of financing you can get from your dealership that doesn't focus on your credit score and uses your income to decide how much you are approved for and what car you will be able to buy within your price range.

Sounds great, right? After all, it helps you knock out two major decisions at once.

Unfortunately, there are some downsides to buy here pay here loans. Because they are specifically for borrowers with poor credit (a score of 600 or below), buy here pay here loans come with high interest rates.

Below, we take a look at everything you need to know about buy here pay here loans and why "no credit, no problem" may not be the best scenario for you.

Pros & Cons

Buy Here Pay Here Pros

Buy here pay here loans do have appeal in some circumstances, including:

  • Many of these dealerships accept bad, poor, or no credit
  • No or little money on a down payment ($500 or below)
  • Quick and easy process that allows you to purchase a vehicle and receive financing

Buy Here Pay Here Cons

While there are benefits to buy here pay here loans, the downsides may not be worth it:

  • Interest rates are typically much higher than other options.
  • These loans may not help you build or improve credit since many lenders don't report your payment history to the three bureaus: Experian, Equifax, and TransUnion. However, missed payments and negative marks may be reported. Be sure to confirm you have made all your payments so your credit won't be affected by collections, repossession, or late/missed payments.
  • Borrowers may have to visit the dealership weekly or biweekly to make payments directly.
  • Your vehicle may end up costing more (up to thousands of dollars) than what it's worth in the long run due to the high interest.
  • Additionally, many of these vehicles may be older vehicles with a high mileage that have inflated prices.
  • Because of the risk associated with lending to those with poor or no credit, some dealers may install a GPS tracking device or a device to prevent it from starting in case a customer misses payments or they need to repossess it. This is not typical with most car dealerships.

How To Get Out Of A Buy Here Pay Here Loan

It's difficult -- but possible -- to get out of a buy here pay here loan. Here are two options:

  • Sell your vehicle. The easiest way to rid yourself of a buy here pay here loan is to sell the car yourself and use the cash to pay off your loan.   You will make more money if you sell it yourself instead of trading it in. However, there is still a risk of winding up with a balance even after selling.  First, you need to find the value of your car, which can be done by using Kelley Blue Book, Black Book, or Edmunds to find the true market value (TMV).  You'll then have to contact your lender to receive a payoff estimate (how much you need to pay to be out of the loan).   Best case scenario: you sell your car, pay off the loan, and have cash left over.   Unfortunately, there is also the risk that you'll sell your car and still have to pay down the loan, leaving you "upside down" on the loan.
  • Refinance your loan. Refinancing your loan (replacing it with a new loan from a different lender) is another good option. However, successfully refinancing the loan may come with its own issues.   First, your credit history isn't built or impacted since the payments you make on a buy here pay here loan typically aren't reported to the bureaus. Because of this, lenders can't see your payment history and may not be willing to refinance your loan.   Additionally, buy here pay here lenders usually sell older vehicles with high mileage that may not meet the guidelines lenders have for refinancing.   Regardless of the difficulty you might encounter, it's always worth looking into loan refinancing. You may have to improve your credit or find a cosigner, but loan refinancing can save you thousands in the long run.

Alternatives To Buy Here Pay Here Loan

If you're on the fence about getting a buy here pay here loan, you should know that you have some alternatives to settling for high-interest financing.

  • Save as much as you can. If you're in a place where you can do so, then save up as much as you can until you are in need of a vehicle. With enough savings, you may not even have to take out a loan.   During this time, you can also work on building and improving your credit to qualify for better loan terms in the future.
  • Shop around for a loan. If you have poor or bad credit, then you'll find that it is much harder to receive financing for a car.   Luckily, there are reputable online lenders and credit unions that work with individuals who have bad credit who don't offer buy here pay here loans.   Shopping around for a loan during a short period of time can allow you to compare your options without damaging your credit score since multiple inquiries made in a 15 to 45 day period only counts as one.
  • Find a cosigner. Ask a trusted family member or friend with good credit to cosign a loan. While this helps with your chances of receiving a loan with lower interest, it comes with a major risk since their name is on the loan too. If you default on the loan, then their credit is on the line as well as yours, since late and missed payments -- and any other activity -- is reported to the bureaus for both parties. 

What is a buy here pay here loan?

A buy here, pay here loan can help borrowers with bad credit find auto financing. However, these come with high costs and generally don't help you build credit.

Can a buy here pay here affect my credit?

Buy here pay here loans generally don't help you build credit since dealerships may not report your payments to the credit bureaus (Experian, Equifax, and TransUnion).

How much interest will I be charged with a buy here pay here loan?

Borrowers can expect to pay high interest for buy here pay here loans -- usually an average of 20% but up to 30%.

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