More stringent lending standards and higher interest rates are results of the unstable economy. That is, for the time being anyway.

That is to say, many consumers may find it difficult to secure a car loan at this time. You might need to seek out other forms of financing if you encounter more scrutiny from financial institutions like banks and credit unions. “Buy Here Pay Here” (BHPH) dealerships are one option. Vehicle lots that specialize in “Bad Credit No Credit” or “Tote Your Note” may go by other names.

When looking for a car and a lender, BHPH dealerships aren’t the best option. But they help those who aren’t eligible for a typical loan in one way or another. Neither the car nor the interest rate will be of the highest quality. But BHPH merchants are experts at lending money to those who have no other options.

In this article, we will go over what BHPH is, how it operates, the situations in which it could be appropriate, and the potential impact on your credit score of a BHPH loan.

Buy Here, Pay Here Automobile Lots: What Are They?

A BHPH car lot, in its most basic definition, is one that offers both sales and financing for automobiles. It does more than just arrange the loan; it uses its own funds to underwrite it as well. Therefore, the dealer, not a bank or other conventional lender, decides whether or not to grant the loan. Because the dealer keeps all the money, a BHPH dealer has even more incentive to sell you a car. The dealer’s profit is double-sided: first, from selling the car; second, from financing the loan and collecting interest.

If the dealer does a quick credit check, which happens very rarely, it won’t make a difference. The approval process is influenced more by the dealer’s desire to sell the car than by the borrower’s credit history and score. Having evidence of both work and residency is usually sufficient to get approval.

A conventional vehicle dealership that has BHPH available on their used car lot can be out there if you look hard enough. No, it can’t call itself that. It may, however, underwrite part of its own financing if it displays signs reading “We Finance” or “Rebuild Your Credit” or if it paints these words on the windshields of certain of its inventory.

Buy Here, Pay Here: How Does It Operate?

There are a number of key distinctions between dealing with a conventional dealer and a BHPH dealer. You should be ready to answer some qualifying questions upfront when you browse at a BHPH lot. For instance, you might be asked to present evidence of your job and residency as well as the amount of the down payment you want to make in advance. When you’re ready, the salesperson will bring you to the vehicles that meet your qualifications.

The BHPH loan differs from a conventional third-party loan in that payments are made directly to the dealership rather than to a bank, credit union, or financing firm. You can be obligated to pay every two weeks or even once a week instead of once a month.

Interest rates charged by BHPH are likely to be substantially higher than those offered by more conventional lenders. An APR rate of about 29% is the maximum allowed by most states for BHPH dealerships. Interest rates of 20% or higher are not uncommon, though you probably won’t be paying that much.

The repossession process at BHPH dealerships is typically far faster than at more conventional banks. Many BHPH loans require more frequent payments so that the buyer is kept in the loop. That is, to provide the dealer an advantage over a borrower who is late with a payment. Dealers can seize vehicles even if payments are made regularly; all it takes is missing one payment to trigger repossession.

Advice: Find out the dealer’s policy on late payments and make sure it’s written into the loan agreement before you sign anything.

Buy Here, Pay Here Is Necessary In What Circumstances?

You should only approach a BHPH dealer after you have tried all other legal means of obtaining a loan. The point is not that BHPH is inherently negative. If you don’t really need the money, there’s no need to pay the exorbitant BHPH interest rates. However, BHPH could be your last option if you have a credit history of irregularities and a score below 500.

A helpful hint is to look for a BHPH dealer that can report to the credit bureaus. Although not all dealerships do, a few do. Paying your bills on time will go a long way toward repairing your credit, therefore you should be recognized for that.

The Impact of Buy Here, Pay Here on Your Credit Score

You can finance a car at a BHPH lot without worrying about harming your credit. Since nobody outside the dealership knows about the loan, it often becomes a credit black hole. Also, your credit is already poor, which is why you’re going via a BHPH dealer for financing. Your credit was already in bad shape when you stepped foot on the lot. It is possible to repair credit by making on-time payments to a BHPH dealer that reports to the credit bureau. Maintaining a positive payment history on any type of loan or revolving credit account is essential to building credit.

However, repossessions are often reported by even BHPH dealers that do not normally report positive activity to the credit bureaus. That is to say, a negative mark may appear on your credit report if the dealer repossesses your vehicle due to insufficient payments (which could be as little as one).

An Auto Loan Co-signer: What Is It?

A co-signer is one option you might not have thought about or looked into yet. In the event that you are unable to make the scheduled payments, this individual—a close friend or relative with excellent credit—is named as the responsible party on the loan. We usually don’t recommend having someone else sign on your loan, especially if you’re the one doing the signing. It’s a role that has all the negative aspects. To the borrower, though, it can be the only thing keeping them from losing their loan.

A credit check will be conducted on the borrower as well as any co-signers. Lenders need assurances from co-signers that they can really afford the payments. If the borrower is late with one or more payments, the lender may ask the co-signer to shoulder some of the financial burden.

For the borrower, the bottom line is that a co-signer is usually all that’s needed to acquire that difficult-to-get auto loan, and if payments are made on time, it’s a chance to restore credit.

As a general rule, we do not recommend that someone co-sign for another person’s vehicle loan. Outcomes are nonexistent. There may have a detrimental impact on your credit score. Furthermore, the vehicle will not be yours even after you pay off the loan and make all of the installments. It is still the borrower’s property.

Can You Explain “Lease Here, Pay Here”?

Another option for borrowers with higher risk is Lease Here Pay Here (LHPH), although it isn’t as well-known or popular as BHPH. The reason dealers appreciate it is that it increases their profit margin. However, for customers with poor credit, it’s a practical, although pricey, solution to their short-term transportation demands through leasing.

How exactly it increases the dealer’s profit margin is irrelevant for the purposes of this discussion. Does it really matter? But for the buyer, it can imply a more flexible lease period and a higher-quality vehicle than what would be available with a BHPH loan. Crucially, the dealer maintains full ownership of the vehicle. Put simply, the lessee does not acquire ownership of the vehicle upon the expiration of the lease. The car is actually rented out to the lessee.

The buyer benefits from a slightly better vehicle and a reduced monthly payment compared to the same vehicle financed through a BHPH program. But if you’re lucky enough to land on a BHPH property, we recommend buying instead of leasing.

Advice: Even for the typical customer with excellent credit, we generally do not recommend leasing. You can get more mileage for your money, which is one of the benefits. It doesn’t make financial sense to pay for something over a long period of time without actually owning it, especially for consumers who are already trying to make ends meet.

In Power Motors

Speaking of buy here pay here options, In Power Motors has been a leader in the used car business for over a decade. Located throughout Arizona’s valley, In Power Motors offers buy here pay here plans on approved credit. This means most individuals with bad or zero credit can take home their used car today with an in-house payment plan. With four locations, ranging from Phoenix to Tolleson, In Power Motors provides buyers with top-notch customer service and expertise. Pre-approval and online applications are available through In Power. These lots are filled with quality cars, trucks and SUVs. A first-time or longtime driver will be blown away with all that In Power has to offer.

Come check out some of the largest inventories in the state when looking for your next vehicle!

Used Cars In Phoenix

If you would like to find a used car dealership in Phoenix that knows how to take care of their customers, please visit InPowerMotors.com. We have a huge list of $500 – $1500 Down (O.A.C. – On Approved Credit) used cars for sale.[/vc_column_text][/vc_column][/vc_row]