What You Need To Know About Buy Here Pay Here Dealerships

Driving around town you may have noticed used car dealerships on the street corner, but they’re rather small and don’t appear to be sanctioned by an official manufacturer. These are known as the Buy Here Pay Here Dealerships, and can stir up quite a bit of controversy, given the negative connotations associated with them. While there are two schools of thought about whether or not they are in fact bad news and deliberately cause grief to unsuspecting patrons, it’s important to be aware of them. If the suspicions come to a head it’s believed that what they advertise could spell another economic downturn.

What Are Buy Here Pay Here Dealerships?

In a nutshell, they are dealerships that offer auto loans directly and not through a bank or other financial institutions. Every part of the transaction only involves the dealership, as they are also the dealer. A car loan isn’t necessarily a bad thing, after all how many of us can really afford to pay for a $15,000 car in cash? However what BHPH dealerships are known to offer are loans, without having looked at any credit history and couple them with astronomical interest rates, sometimes as high as 30%. Effectively anyone can walk into one of these dealerships and qualify for a loan, even with a bad credit score. It’s not uncommon for BHPH dealerships to require monthly (or sometimes weekly) payments in person, either.

What to Watch Out for at BHPH dealerships

If you are walking into a BHPH dealership with the intent of buying a car, be sure to ask about the repossession clause that they enforce. According to the law, no notice needs to be given when a loan goes into default status, and the grace period differs according to state laws. When this happens the dealership has every right to repossess the car. Because of the nature of the loans and the target market of BHPH dealerships (that being consumers with low/bad credit), payments are often skipped and therefore the car is subject to repossession.

The Low Down Payment and No Credit Check Lure

The good thing about these kinds of dealerships is, if you’re having a hard time getting a loan from any bank or credit union, these dealerships will be there to help you out. Often times they advertise low down payment and no credit checks on the loan to attract customers. That said, before making any decision, it’s a good idea to take a look at your credit score, and evaluate various auto loan options from your bank and local credit unions before walking into a BHPH dealership.

Realistically, if you’re in the position where you must accept the BHPH dealership as the last resort, maybe it’s not the right time to get a car loan. While it would make life easier short term, in the long haul the headache and hassle of massive debt might not be worth it.

In the meantime, if the car you’re looking at is around $30,000 or so, we suggest considering cheaper alternatives like a Hyundai Accent which is something you can get brand new for around $14,000. Sort out your expenses and existing payments, use our calculator to help you set a realistic budget on how much car you can really afford.

Watch out for certain things while you visit different dealerships, as some mask the same offering of in-house financing with signs that say things like “We Finance”, "No Credit Check". Do your due diligence and make sure your loan is issued by a legitimate lending institution.