What to Expect From Buy-Here Pay-Here Car Dealers

Doing Business There Should Be a Last Resort

A row of used cars with American flags blowing in the breeze

Justin Sullivan / Getty Images

Buy-here pay-here (BHPH) dealers sell used cars and then handle the financing. The loan comes directly from the dealer, typically underwritten by a financing company. BHPH dealers usually specialize in older used cars (probably at least 10 years old) with high mileage for clients with bad credit.

Many BHPH dealers won't accept loan payments by mail. You'll have to return to the dealership to pay on your loan, sometimes as frequently as weekly. They want cash or money orders because people with bad credit usually can't be trusted to pay by check.

Try Elsewhere First

Before using a BHPH dealer, apply for auto financing through banks or credit unions. Don't assume that because of past credit issues you aren't going to be able to get financing. You might be pleasantly surprised.

If you're repeatedly denied a loan, however, it's time to consider going to a BHPH dealer.

Select a Dealer

Choose a dealer who reports payment histories to credit reporting bureaus. Not all do this because they're not in the business of improving credit scores. They don't make money from people with good credit.

Your choice of cars will be limited to what's on the lot, probably a very limited selection. Instead of getting the car you want, you'll get the car you can afford. Even if your funds are tight, however, be sure to get the car inspected before signing on the dotted line, as you should with any used car purchase.

Financing Comes First

You don't pick out a car and then discuss financing, as you would at a regular used car dealership. Financing is discussed upfront. The dealer determines what your payments will be and wants to know what you're good for before showing you what cars you can buy. Expect to pay higher interest rates than you would elsewhere, even higher than if you were using a credit card.

Don't forget to ask the dealer the usual questions you would when buying a used car from any seller.

Purchasers Might Be Tracked

If you buy, your dealer will always know where you are because the vehicle you purchase from a BHPH dealer will have an electronic tracking device.That's so the re-po folks know where to go to repossess the car if you don't make the payments.

Some BHPH dealers install ignition shutdown technology in the vehicle to stop people from fleeing if their loans are overdue, wherever they are. Some devices alert drivers if they're in default before shutting down the car. Assume that such a device will be on any BHPH used car you buy. That makes it important for you to learn the dealership's late-payment policy. Less reputable dealerships may be eager to swoop in and repossess or disable your car.

What's Their Deal?

All BHPH dealers aren't bad people, but they are business owners. They expect to make a profit and they serve a market that other business owners, such as major dealerships and financial institutions, don't want. But they have a bad reputation from zeroing in on less-educated consumers and using high-pressure sales tactics.

Remember that you don't have to buy a used car from any particular BHPH dealership. Walk out if anything about the transaction makes you uncomfortable. It's better to be inconvenienced and without a car than to be ripped off for hundreds, if not thousands, of dollars.