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7 Costly Mistakes to Avoid With Buy Here Pay Here Cars

The Unconventional Guide to In-House Financing Dealerships

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When your credit is less than perfect, it might seem tempting to check out the buy here pay here cars in your local area. For some people, this has been a good choice that helps them later in life. Most often, purchasing a vehicle from one of these establishments proves to be disastrous instead.

To help protect you from danger, we’ve put together our list of the mistakes you can avoid when looking at buy here pay here cars.

What are Buy Here Pay Here Cars?

Buy here pay here cars are sold at automotive dealers that extend their own credit lines to customers so they can purchase vehicles. Most customers of these dealerships tend to have a poor credit history or have outstanding loans with higher interest rates.

The BHPH operation has options available to those clients that would otherwise have trouble getting a quality vehicle. This concept began in the 1970s when the United States was facing a loan and savings crisis. Unemployment was rising and good credit was hard to attain.

At the time, dealers still wanted to encourage auto sales, but many people were unable to pay cash for their purchase. When the banks wouldn’t approve a credit application and loan money to the consumer, the dealer would start their own finance company to approve the auto loan itself.

Keep in mind that when dealers send the customer to the bank for a loan, they had a decreased risk on the vehicle. When financing is done in-house, there is more risk associated with the company and therefore there are further precautions they need to take.

While this model works well for the customer who would have no trouble paying these high-interest loans back, it could backfire for many other consumers who can’t apply for credit the usual way.

Those searching for buy here pay here cars tend to fall into these categories:

– Suffering from bad credit, low credit or no credit

– Already have existing high-interest loans

– Looking to rebuild your credit history

The most important aspect is figuring out which BHPH dealerships are honest and reputable. There are more car dealerships that are fly-by-night than there are respectable ones, so you must be careful which buy here pay here car dealers you strike a bargain with.

7 Mistakes with Buy Here Pay Here Cars

To protect you, we’ve put together a list of the seven mistakes you can avoid with buy here pay here financing.

1. Higher Interest Rates

For dealers to accept the risk of financing vehicles for customers with no credit or bad credit, they need to make more money. This is understandable considering the circumstances but could be disastrous when buying from a shady Pay Here dealership.

Sometimes Pay Here dealers will charge consumers interest rates up to 30 percent! That makes for an extremely overpriced car, but the customer doesn’t balk at it because they can’t buy a car, or any credit approval, elsewhere. Traditional financing firms and credit union companies charge far less interest but if you need a car with bad credit, you may be forced to accept the terms offered at Pay Here car lots.

To avoid getting into a jam with your payments, there are some things you’ll need to keep in mind and stay on top of your auto financing. First, factor in your insurance payment when you are thinking about the monthly expenses you have related to your automobile. This will help you to remain realistic in terms of what you can afford.

Another way to help with car financing is to save up money for a higher down payment. The more money you put down, the less you will pay on a loan; meaning you will also spend less on interest.

2. Hidden Fees

I wish I could tell you that all dealerships are going to be honest and upfront about the charges you will face, but that simply isn’t the truth. While there are some establishments that don’t mind breaking everything down for you, you’ll find the shady locations to be less than truthful. In fact, if they are financing it themselves, they are more tempted to be deceitful because they can repossess the car (more on that in a bit).

The key here is never to assume that your Pay Here dealer is going to be honest about fees. Look over all the paperwork carefully before signing anything. Get the costs for all:

– Administration fees

– Handling fees

– Inspection fees

– Detailing fees

– Delivery fees

You’ll also want to make sure that the price matches what you verbally agreed to. It’s important that you know exactly what the payments will be each month, what the total interest is, when the payments end, and what happens if you are late. You might find out that BHPH financing is not the best option for you.

3. Limited Inventory

The other downside you could run into with the Pay Here car dealership option is that they carry less inventory. While you might be able to find some lots with a varied inventory full of different models and makes, most are restricted to a small selection.

In addition, you can’t just go to any car dealer and get the car you are looking for. Because of this, you are going to have to take what you can find. It’s possible to shop through a dealer’s online inventory on dealer websites to see what they have available, but you’ll want to call and ensure that the cars you are looking at are approved for Buy Here Pay Here payment.

4. As-Is Vehicles

It’s true that desperate people do desperate things. If you need a way to work so you can feed your family but you can’t get a car loan because of your current credit status, you are going to take whatever vehicle is available to you. The sad thing is that some BHPH locations will take advantage of this and intentionally sell you an automobile that isn’t in good condition.

If you are able to spend a little more, it would be worth your time to find a dealer that offers certified pre-owned vehicles. Having a car that’s been thoroughly inspected will save you from driving away in a clunker.

In addition, most BHPH dealers aren’t going to offer warranties on their vehicles. If anyone is asking you to purchase a car without the option of having a warranty, you should run. This either means that the vehicle isn’t worth warranting or they are hiding something from you.

Any reputable dealer is going stock cars that are worth having a warranty on. Do yourself a favor and make sure your investment is protected. At the very least, drive the car before you commit to buying it. Almost all reputable Pay Here auto dealers will let you take a quick test drive of sorts.

5. Repossession

When you take a loan through a Buy Here Pay Here used car lot, you are going to need to be sure you make your payments on time. They will not usually work with you when you get into a jam and they aren’t going to give you any leniency for your loan. They will gladly come pick up the vehicle and resell it to someone else with bad credit. A traditional lender, and other major finance companies may cut you some slack. A private lender will not.

That’s why we continue to tell you how important it is that you ensure the payment terms are clear and you can afford the payment. When you are looking at buy here pay here cars, you are likely already struggling with bad credit. The last thing you’ll need on your record is another defaulted loan.

6. Re-financing or Trading up

After a year of making on-time payments on your buy here pay here vehicle, you might think that your credit is good enough now to refinance through a standard institution so you can lower the payments. The problem with that is your interest rate yet again.

Most likely, a good chunk of your payments have been going to paying down the interest, so you are probably upside down on your loan. When the amount owed is more than the value of the vehicle, you aren’t going to be able to get financing to pay it off.

In fact, you’ll face the same issue if you go to trade in the vehicle at a later time. Your best bet is to pay more on the loan than the minimum payments if you can. That will help you to pay down the principal so you might be able to refinance at a later time. Consult an online payment calculator to find out how much of your loan is paid off, or how much interest remains.

7. Lack of Credit Reporting

Not every BHPH dealer takes the time to report to a credit bureau. So, you could be paying for your car in a timely manner thinking that you are rebuilding your credit only to find out that your efforts were fruitless.

One of the main reasons to get this loan is to increase your credit score. That’s why you’ll need to find a dealer that is going to report your on-time payments. Make sure you ask upfront if they are going to report your payments to the credit bureau so you can kill two birds with one stone.

Questions to Ask Before You Purchase Buy Here Pay Here Cars

Some people need to purchase their cars at a BHPH and we understand that. Thankfully there are ways to get what you need when visiting one of these dealers. The best time to ask these questions is before you strike deal, to make sure that you fully understand what’s going on.

The key to a successful relationship with your BHPH dealership is getting all the information out on the table and understanding your role. That’s why you need to take the time to ask the right questions. Here are some things we think will spark the right conversations so you can have a positive transaction.

  1. What should I bring when I visit your dealership?

This question should be asked prior to your visit. Having all the documentation they need will make the process much faster for both of you.

  1. What payments do you accept?

Unlike a traditional loan from a credit bureau where you make monthly payments, you will most likely be put on a weekly payments schedule with the dealer. Some are going to require you pay them in cash, so it’s important to understand the terms up front.

  1. What is the late payment policy?

We know that it isn’t your intent to pay your payments late, but life happens. You should always know the terms associated with a late payment on any loan you acquire. The BHPH dealer can make any rules they desire regarding their loan, so it’s possible for them to repossess the vehicle a day after a payment is missed. Some will offer a grace period.

  1. What guarantee does the vehicle have?

Bad credit doesn’t mean you have to settle for a sub-par vehicle. There are BHPH locations that will offer their customers reliable automobiles. Ask the dealership about their inspection standards.  It would also be important to find out if they offer maintenance or car repairs onsite. Check the Kelley Blue Book website too, just to make sure you’re paying the right price for the vehicle in question.

Final Say

We get that not everyone has a stellar credit situation and that some of you might need to visit a place with buy here pay here cars. Your transaction doesn’t need to be a disaster if you go prepared, though, so get your ducks in a row now to ensure you drive away with peace of mind.

About Brian Jones

Brian Jones spent over 30-years at various dealerships as an ASE Certified Master Tech. These days he works with those dealerships to create quality automotive content while spending more time with his family near Dallas, TX. In his spare time, you'll still find him playing with tools, cars, and many other "manly" gadgets. Brian's passions include traveling, pickup trucks, and anything related to motorsports.