For many reasons, traditional third-party financing (banks, credit unions, automaker-associated lending companies such as Ford Motor Credit and so forth) doesn't work for everyone. Buy Here Pay Here (BHPH) provides yet another path to buying a used car with credit for those borrowers who find most other financing avenues closed to them.
Unless you have a very good reason for avoiding traditional lenders, though, BHPH should be a last-resort remedy.
What Is It?
BHPH financing means that you arrange the loan and make payments on it at the dealership. Not only does the dealership sell you the used car, but it also lends you the money to buy it. In other words, the BHPH dealership is the finance company.
The good news is that a BHPH dealer is supermotivated to finance your purchase because he wants to sell you a car. This isn't done out of charity, however. In truth, he will probably make as much, or more, profit on the financing as he does on the car itself. As a high-risk borrower, expect a double-digit interest rate.
You should be prepared to revisit the dealer more than once a month, so it's better to find one close to home or work. Although some dealerships will accept payment by mail, phone or online, BHPH dealerships often require that you physically bring your payment to their location on a weekly or biweekly basis.
Differences Between BHPH and Traditional Dealerships
Depending on the dealerships you visit, there may not be a huge difference between regular and BHPH dealerships. In fact, some traditional new- and used-car dealerships now offer BHPH financing as an option. You might not see "Buy Here Pay Here" written across the windshields of their cars, but phrases such as "We Finance" may indicate that the option is available. If you're having trouble getting traditional financing, try the used-car lot at a franchised dealership that advertises easy financing or an opportunity to rebuild your credit.
One key difference between traditional dealerships and those specializing strictly in BHPH is the shopping experience. At a traditional dealership, the subject of financing arises near the end of the purchasing process. Once you choose the car, the dealer helps you explore payment options.
At a BHPH dealership, the process is typically reversed. First come qualifying questions, such as how much of a down payment you can afford, and maybe even a credit report before the dealer shows you cars that fit your financial situation. Unfortunately, your choices will be limited. The dealer will basically tell you which cars that you're able to buy.
Another key factor to understand is the late-payment policy. Ensure that it's plainly stated in the contract with the length of any grace period specified. You need to know the length of time is between missing one of those weekly payments and the repossession of the vehicle.
Who Should Go to a BHPH Dealership?
Never assume that you can't get traditional financing; your credit could be better than you think. Always go to traditional lenders first: banks, credit unions and even finance companies. Only when you are certain that you can't get financed by one of those options should you consider a BHPH dealer.
Benefits of Buying BHPH
The main advantage to BHPH dealerships is for buyers in tight financial situations: BHPH puts credit-challenged borrowers in a car when no other traditional lender will allow it. On-time payments can also help rebuild a positive credit history; make sure that the dealer is reporting payment history to a credit bureau.
Another advantage is for people looking to get a good deal on an old beater -- or make a trade on a used vehicle. BHPH dealers usually have a plethora of older cars available and are more willing to take on a used ride toward the down payment of the car you want to buy.
What it means to you: When a rocky credit history leaves you with no other choice, BHPH can help get you behind the wheel again.