What is buy here, pay here financing?

Life with bad credit card score can be quit challenging. People are always going to be wary of doing any financial deal with you. Renting home might even be impossible if your credit score isn’t positive. Your chances of securing car loan with poor credit score is close to impossible. Traditional money lenders like bank and credit unions might reject your advances owing to your poor credit history. In such scenario, your only option might be buy here, pay here financing.

What is buy here, pay here?

Buy here, pay here financing is the situation whereby the car dealership is the seller and the financer of your car loan. As an individual with poor credit history, you can successfully secure a car on loan through your dealership. The car seller will provide you the means to finance the loan. The car dealership ignores whatever trouble is with your credit card history and will finance the loan in house. Buy here, pay here is also abbreviated as BHPH.

How buy here pay here financing works

Since your options for loan are limited, this might be your only gateway to securing car loan. When you approach the car dealership, the dealer will run a background check on your source of income to ascertain what kind of car your income can afford. The car dealer will now show you cars that are within the price range of your income. After you make a choice, Car dealership will provide the funding and you will get the car. You will be expected to be making payment for your loan weekly, biweekly or monthly in some rare cases. The whole process is faster than traditional car loan owing to the fact that everything is done in-house. Provided you can prove source of income and have the requisite down payment, you can close the deal faster than you could imagine. Some buy here, pay here even accept low or no down payment at all.

Why buy here, pay here might be bad for you?

People always do business for a reason. You been offered loan with poor credit history doesn’t imply any favor on the part of the car dealerships even though they are putting their investment at high risk. It’s a calculated move on their part. Buy here, pay here might have positive side but surely there are dark sides to it. Below are some reasons why buy here, pay here might not work in your best interest:

Exorbitant interest rates

As an individual with poor credit history, doing business with you comes at a great financial risk. So to offset the risk, you might be charge interest rate that is way above limits charged by traditional lenders. This is the price you pay for having negative credit report.

You may end up buying expensive

Another pitfall associated with buy here, pay here is you might end up paying way beyond the true valuation of the car. Usually, traditional money lenders regulate the amount of money they give you based on the value they deem fit for the car. But in the case of buy here, pay here, the dealership is the lender so there is no restriction.

Inconvenient payment method

Traditional money lenders like banks and credit unions usually demand monthly payment of their loan. However, buy here, pay here in most cases demand weekly or biweekly payment. Sometimes, they demand you make payment in person.

Your credit score might not receive any advantage

Keeping up with payment on time boost credit score history and subsequently, you may find yourself in the good books of lenders. However, buy here, pay here might leave you with zero advantage even if your payment has been consistent. They might end up not reporting it to the credit bureaus.

The cars are mostly old with high mileage

Although this isn’t true about all buy here, pay here car dealerships, but there are many out there who take advantage of individuals with poor credit history and offer them used vehicles with high mileages.

Car dealerships might install car tracker on the vehicle

Owing to poor credit history you posses, buy here, pay here car dealerships are always on edgy about their investment. To reduce their risk and stand a good chance of recovering their car if you fail to turn up according to agreement, car dealerships in most cases install a car tracking device on your car.

How can I avoid buy here, pay here financing with poor credit score?

You might be thinking that the only way you could secure a car loan with poor credit history is to bear all the brunt associated with buy here, pay here financing. But there are ways in which you can avoid or at least mitigate the disadvantages most people face with buy here, pay here financing. Below are some few suggestions:

Get a co-signer to stand in for you

This might be your best option if you can get one. Anyone with good credit history and is willing to stand to stand in for you can be your co signer. Your co-signer will serve as a guarantor for you. If you fail to turn up, the blame falls on him or her. With a co-signer, traditional lenders might offer you loan and you will be free from doing any deal with buy here, pay here dealerships.

Pay in cash

Another means by which you can bypass buy here, pay here is to pay for the vehicle upfront in cash. However, not every individual can afford to pay for a car in upfront in cash. If you have the patience to wait a little longer, consider saving your money until you have gathered enough to buy the car.

Ask around to get a better deal

Another way you can mitigate costs of doing business with buy here, pay here is to inquire for quotes from different car dealerships. Compare and see which one offers you the best deal possible and go for it.

How Buy Here Pay Here Actually Works 

Thomas Moore is a proud American with a Bachelors Degree in Business Administration from the University of San Diego. He has been in the financial industry for many years holding numerous licenses in multiple states. He currently helps operate cashkingco.com and is our resident expert on all things finance and a great writer. Thomas is also an avid outdoor enthusiast that loves fly fishing streams in the Western United States. LinkedIn Profile