Buy Here Pay Here: What’s this?

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If you’ve recently bought a car, or just driven by a few used cars, chances are you’ve seen “Buy Here, Pay Here” signs. But what exactly does that mean and is it a good deal for the car buyer?

Which means “buy here, pay here”.

The term “Buy Here, Pay Here” (BHPH) simply means that the dealership you are buying the car from is funding the sale themselves rather than letting you go through an outside lender. This is sometimes referred to as in-house financing.

Many used car dealers use third party financing companies to provide credit to their customers when purchasing a car. The financing company takes over the qualification of the customer, the granting of the loan, the processing of the payments and, if necessary, the collection process if the customer defaults on the loan. The trader gets a cut in interest in exchange for sending the deal to the lender.

Some traders choose to handle the financing themselves rather than having a financing company handle it. These are the BHPH dealers who often specialize in servicing customers who may have poor – or no – credit or no down payment. This is more risky for the dealer, so they often charge a higher interest rate than other sources of funding.

What is the best way to finance a car?

There are three ways to finance the purchase of a car.

  1. You can get a car loan from your bank. First, fill out the loan application and wait for approval. Once approved, the bank can write you a check to take to the dealer who will buy the car. You then make your payments to the bank until the loan is paid off. The bank is named on the title as the lien until you repay the loan.
  2. You can finance through the dealership with a third party finance company. Most new car dealerships and many used car dealerships offer this option.
  3. You can go to a BHPH dealer and finance there. They take care of the paperwork and you make your loan payments to them.

The best way to finance a car depends on a number of factors, including the car you want and your personal financial situation. Sometimes new car dealers offer financing offers, e.g. B. 0% interest for a set number of months. To qualify for this offer, you’ll need near-perfect credit, additional income above your basic expenses, and a down payment. You must also be willing and able to buy a new car as these deals are not offered on used vehicles.

If you have excellent credit and a deposit, a bank will usually offer the best interest rate outside of a promotion at a merchant. Check with your bank to see what they offer and what you qualify for. Then compare with the dealer’s offer.

If your credit is below average or you don’t have a down payment, a BHPH dealer may be your best option. They’re likely to pay a higher interest rate than someone with perfect credit would pay at a bank or through a dealer financing company, but BHPH dealers often lend to those who wouldn’t qualify for other options.

Regardless of which option you choose when financing your vehicle, there are two things you should keep in mind. First, make sure you can make the payments on time, even if your financial situation changes. Some BHPH merchants offer weekly rather than monthly payments, which can make it easier to keep up. Second, look for the best interest rate you can get for the car you want. If you’re in the used car market, don’t be fooled by the financing offers from new car dealers. And don’t buy a more expensive car than you want or need just because the financing is right.

FAQ

  • What are the disadvantages of “buy here, pay here”?
    • Because a BHPH car dealership doesn’t usually check your credit or ask for a large down payment, they usually charge a higher interest rate than you would get from a bank or finance company. Additionally, some BHPH dealerships do not report your on-time payments to the credit bureaus, so financing a car through a BHPH dealership may not help you improve your credit score.
  • How do I get a car with no money or credit?
    • A “buy here, pay here” retailer will often offer no deposit, no credit check financing. However, this is risky for the trader, so they will try to mitigate this risk by charging a higher interest rate. When choosing a BHPH dealer make sure you choose a car you can afford to pay for.
  • Does a Buy Here, Pay Here go to your balance?
    • Many BHPH dealers do not conduct a credit check to approve your credit. They usually check your income to make sure you’re making enough money to make the payments, but they care less if you’ve made payments on time in the past. Some BHPH merchants also don’t report your on-time payments, so keep that in mind when trying to build your credit.

Information is correct as of June 4, 2022.

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About the author

Karen Doyle is a personal finance writer with over 20 years of experience writing about investing, money management and financial planning. Her work has been featured on numerous news and financial websites including GOBankingRates, Yahoo! Finance, MSN, USA Today, CNBC, Equifax.com and more.

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