What To Expect from Buy Here Pay Here Dealers

Buying from Them Should Be a Last-Case Resort

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If you're interested in getting a loan from a Buy-Here, Pay-Here dealer for your next used car, let me explain what you can expect.

Let's start off by explaining what a Buy-Here, Pay-Here (or BHPH) dealer is. It is a dealer who sells you the used car and then handles the financing. The loan comes directly from the dealer, typically underwritten by a financing company. BHPH dealers typically specialize in older used cars (probably at least 10 years old) with high mileage for clients with bad credit.

All In A Name

Their names are typically what the BHPH dealer is all about. You will have to return there to pay your loan, sometimes as frequently as every week. A lot of BHPH dealers will not accept loan payment by mail. They want cash or money orders because people with bad credit usually can't be trusted to pay by check and those folks are fond of saying the check is in the mail.

Try Elsewhere First

Before using a Buy Here Pay Here dealer, apply for your own auto financing either through a bank, local credit union or online financing institution like Capital One. Don't assume automatically because of some past credit blips that you are not going to be able to get financing. You might be pleasantly surprised. The subprime lending market has seen some signs of life in the first half of 2012.

OK, so now the bad news has come and you are denied a loan. Now is the time to consider going to a BHPH dealer.

Select a dealer who reports your payment history to credit reporting bureaus. Not all are going to do this because, frankly, they're not in the business of improving credit scores. They don't make money from people with good credit.

Your choice of cars is going to be limited to what is on the lot. You will have a very limited selection at a BHPH dealership. You rarely get the car you want. You get the car you can afford. Granted, if you are using a BHPH dealer you don't have lots of money lying around, but make sure you get the used car inspected before signing on the dotted line.

The tricky thing is the dealer determines what your payments are going to be. Financing is going to be discussed upfront. The dealer wants to know what you're good for before letting you know what cars you can buy. You don't pick out a car and then discuss financing as you would at a regular used car dealership.

Expect to pay much higher interest rates than you would anywhere else. The California Legislature is currently considering a bill that would cap loans at 17.25%. That's almost as high as a credit card. That cap suggests people are paying much higher than that for their buy-here, pay-here used car financing.

They'll Be Following You

Your dealer will always know where you are because the used car you are buying from a Buy-Here, Pay-Here dealer is going to have some form of electronic tracking device. Those are installed so the repo folks know where to go when it is time to repossess your used car for non-payment of loans. As the old saying goes, you can run but you can't hide from a Buy-Here, Pay-Here dealer.

Some BHPH dealers even go so far as to install ignition shutdown technology in the vehicle. That stops people from high-tailing it once their loans are overdue. The dealer can stop you dead in your tracks, regardless of where you are. (California would like to see the devices to provide advance warnings to the driver to help avoid stranding them.)

Assume that these devices are going to be on any BHPH used car that you buy. That makes it important that you learn the dealership's late-payment policy. Less reputable dealerships are just interested in taking your money (especially at interest rates above 21%). They may be willing to swoop in and either repossess or disable your used car. Don't forget to ask the dealer the normal questions you would, too.

What's Their Deal?

Are all buy-here, pay-here dealers bad people? Not all but they are business owners. They want to make a profit and they do serve a market that others don't want to (i.e. major dealerships, financial institutions). Where they do get a bad reputation is by zeroing in on less-educated consumers and/or use high pressure sales tactics.

The important thing to remember about a BHPH dealership is you do not have to buy your used car from one particular dealership. Walk out the door if anything about the transaction makes you uncomfortable. Better to be inconvenienced and without a car than to be ripped off and out of pocket for hundreds, if not thousands, of dollars.