Buy Here Pay Here Auto Financing: Know Your Options




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Having fair or bad credit can hold you back from many borrowing opportunities, including buying a car. But some car dealerships work with borrowers who can’t qualify for a traditional auto loan by offering what’s called Buy Here Pay Here (BHPH) financing.

BHPH dealerships can sound enticing for borrowers with low credit scores or minimal credit history, but there are risks that might not make it the best choice. Here’s what to consider before opting into BHPH financing for your next car purchase.

How Does Buy Here Pay Here Work?

When you buy a car at a traditional dealership, they send your application off to an auto loan lender. If you get denied for a loan, there’s a chance you can’t afford to buy your car—especially if you were relying on financing to get your car. With BHPH, the dealership manages your loan and your car, so it’s both the dealer and the financing company.

Instead of finding the vehicle you want to purchase, then securing financing like you would at a traditional dealership, BHPH dealerships do it the other way around by:

  1. Financing first. The dealership will first see how much they’re willing to lend to you, which could be based on your creditworthiness and down payment.
  2. Then you choose a vehicle. With the financing figures, they’ll show you the cars that fit within that range. You get to choose from the inventory the dealership has, but you might not always have many options.

With BHPH, you have a higher chance of getting approved for an auto loan for the vehicle you choose, since many of these dealerships have either no credit checks or guarantee approval to borrowers with bad credit.

Note: You might not see “Buy Here Pay Here” on any paperwork or marketing materials. Instead, you may see phrases like “financing available” or “we finance” to entice shoppers who don’t have good credit and need a car right away. Be sure to ask the dealer exactly what type of financing they offer.

Buy Here Pay Here Rates

Auto loans often have some of the lowest interest rates across all lending products. The average interest rate on new cars for borrowers with excellent credit was 2.47% and 3.61% for used cars in the 2021 fourth quarter.

For BHPH borrowers, you can typically expect much higher interest rates on auto loans—usually between 15% and 20%.

Does Buy Here Pay Here Affect Your Credit?

Most auto loan lenders will trigger a hard credit check on your credit report. So your score will take a temporary hit when you complete an auto loan application. But after a few on-time payments, your score should start to climb back up.

With BHPH, however, there’s a chance you might not get hit with a hard credit check. Some lenders don’t check at all, and others will check but don’t hold bad credit scores against borrowers looking for financing.

Not all BHPH lenders will report your loan to the major credit bureaus. This means on-time payments won’t increase your score because a loan might not be detected in the report. On the other hand, if you fall behind on payments and your car gets repossessed, your credit score might not see a drop like it would with a traditional auto loan lender.

Related: What Credit Score Is Needed To Buy A Car?

Buy Here Pay Here Alternatives

A Consumer Financial Protection Bureau (CFPB) study found that you’re more likely to become delinquent or default on your auto loan if you go through a BHPH dealership compared to traditional ones. This isn’t because borrowers were any more or less risky, but because the interest rates were so high.

If you have poor or fair credit and you’re in a tight spot financially, BHPH could be enticing. You’ll most likely get approved and get into a car within the same day with little to no approval process. But you might want to consider other options first.

Shop Around for Loans

Instead of basing your choices solely on what you can get at the dealership, secure financing first. You can compare rates and options at different banks, credit unions and online lenders. Look at what you need to qualify, like minimum credit score and down payment requirements.

Securing financing before going to the dealership means you already have a way to pay for your car and don’t need to rely on the dealership financing options to get one.

Find a Co-signer

If you have a parent, partner or other trusted friend, see if they’ll co-sign your loan with you. This is a big commitment as they will be just as responsible for your loan as you are—but a co-signer can be a great help for many borrowers.

Just make sure both you and your co-signer understand the risks and all your options when it comes to repayment.

Negotiate With the Dealership

If you do secure financing through a traditional dealership, remember that the numbers aren’t final until you sign a legal contract. Carefully review everything, including the total amount you’re financing for the car, the interest rate and your monthly car payment.

Try to negotiate a lower interest rate, if possible. But if the rate can’t go any lower, see if there are other vehicles offered at a lower price that are more in line with what you can afford. You could also ask for a longer term loan which could lower your monthly payment—just keep in mind this will likely cause you to pay more in interest over the life of the loan.

Related: Best Time To Buy A Car

Consider a Personal Loan

An auto loan isn’t always your only financing option when it comes to getting a new vehicle. You could also use a personal loan to buy a car. Though personal loans don’t require a down payment or collateral—in this case, your car—they do tend to have stricter requirements than auto loans. They also tend to have higher interest rates. So, before you decide, compare a few personal loan options to see if you can qualify for a lower rate or terms that work better for you.

Review All Your Options

While Buy Here Pay Here financing might seem like a great option if you have bad credit, it might not offer the best rates and terms. Review all your options before making a decision. Even with bad credit, you can find ways to finance a car that will work for your situation—and your finances.

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