Bad credit car buyers who aren't able to qualify for a traditional or subprime auto loan often turn to buy here pay here (BHPH) dealerships to get financed. This is usually viewed as a last resort and isn't always the best move, because BHPH loan terms are typically more expensive. Sure, you can get approved more easily, but it's typically going to cost you more than it would at a more traditional dealer. The truth, however, is that a BHPH lot may be a better choice than you think in this day and age.
Buying a Car at a BHPH Dealership
Buy here pay here dealerships are a one-stop shop when it comes to car buying because the dealers are the lenders. This means they're financing the vehicles on their lots themselves, without getting a third-party lender involved. This can make the car buying process quicker, and if you're prepared, you can often sign and drive in one day.
So, how do you prepare to buy a vehicle at a BHPH lot? Even though these dealerships don't follow all the same steps as a regular subprime lender, you still need to fulfill some of the same requirements. For instance, you have to bring in a number of documents in order to be approved for a loan.
Unlike subprime lenders, BHPH dealers don't typically check your credit, but they still need you to provide proof that you are who you say you are and you make what you say you make. That usually means bringing in a valid driver's license, proof of income with your most recent computer-generated paycheck stub, and proof of residence with a current utility bill in your name.
Once you're approved, the dealership can point you toward the cars you qualify for so you can choose the one that meets your needs. Depending on the vehicle, a second common factor comes into play: a down payment. Down payments are almost always required for bad credit borrowers, no matter where you're getting an auto loan from. When you purchase a car at a BHPH dealer, your down payment is typically based on the price of the vehicle.
Buy Here Pay Here's Bad Reputation
For a long time, buy here pay here dealerships have had a bad reputation – some of it deserved. But over the past decade, BHPH dealers have been working hard to turn this around and prove that their dealerships can be a good choice for people with bad credit.
Some of the things said about BHPH car lots in the past were myths, but some of it was true:
- Outrageous interest rates – It's not uncommon for people to warn against going to this type of dealer because they charge unnecessarily high interest rates, often thought to edge up beyond 30%.
- Inconvenient payments – The "pay here" part of the buy here pay here name comes from the fact that many of these dealerships require payments to be made in person. This can be a pain, especially if you don't live nearby.
- Expensive vehicle prices – The price you pay for a car is unreasonably high. It wasn't uncommon for BHPH dealers to require a down payment that covered that cost they paid for the vehicle, with your continued payments pure profit.
- No chance to build credit – Because these dealerships usually don't check your credit, they also didn't report your loan or timely payments to the national credit bureaus, which doesn't give you a chance to improve your credit.
- Old, high mileage cars – It was said that the vehicles weren't worth what you paid for them, most being older model cars that often showed over 100,000 miles on their odometers.
Changes in BHPH Dealers
All buy here pay here dealers vary, so what you find at your local lot depends on the one you visit. However, thanks to new federal and state regulations, BHPH dealerships have to live up to a higher standard than they used to. Any bad apples that spoiled the bunch have less of a chance to be unethical in today's automotive market.
Here are some of the things you're more likely to see now:
- High interest rates – It's true that when you have bad credit you're going to pay a higher interest rate, but these days people with bad credit are more likely to see interest rates of around 13% to 20%.
- Better payment structure – Though some BHPH dealers still require you to pay in person, you can typically choose to make payments on a variety of schedules. Some of these places offer weekly, bi-weekly, or monthly payment plans, and you may even be able to tailor it around your own pay schedule. Rather than exclusively in-person, lots of these dealerships are moving into the digital age and accepting online payments.
- New BHPH regulations – The reason BHPH dealers could charge so much for vehicles in the past had a lot to do with laws and regulations that govern dealerships. Now, thanks to stricter state and federal laws, car prices, and the BHPH practices for how they're charged, align more with a fair standard.
- Credit building possibilities – Even if the BHPH you go to doesn't check your credit (although some do now), it's more likely that they're going to report your loan and timely payments to the national credit bureaus so you have a chance to build credit, just like other auto loans.
- More vehicle selection – These days, the process through which BHPH dealers acquire cars has improved along with the regulations that help make pricing more fair. Because they're able to offer a wider selection, you have a better chance of finding late model used vehicles. This doesn't mean they still don't carry older, higher mileage cars, it just means that you have a better chance of finding more recent models, too.
The Bottom Line
Even with all of the improvements over the years, buy here pay here dealerships aren't for everyone. If you're searching for a BHPH dealer because of bad credit, you may not need to.
Often, people with poor credit don't realize that there's a whole group of lenders out there that can help them get approved for an auto loan with poor credit. But, whether you need a BHPH or a special finance dealership, Drivers Lane wants to help you take the hassle out of the search.
We work with a nationwide network of dealers that have the lenders available to help you get the financing you need. All you have to do is fill out our easy, no-obligation car loan request form, and we'll get the process of matching you with a local dealership started right away!