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How Does Buy Here Pay Here Work?

Buy here pay here auto loans helps borrowers with bad or poor credit get vehicle financing — but you might run into a hurdle or two. These auto loans may not help you build your credit, and the auto loans come with higher costs; occasionally 1,000’s of dollars more than what the vehicle is really worth.

When you have bad or poor credit, it can be difficult to get approved for an auto loan. Some dealerships have buy here, pay here financing for borrowers with bad or poor credit.

With buy here, pay here auto loans, the car dealership operates as the seller and also the lender by providing in-house financing. Dealers occasionally advertise these auto loans as “no credit check” auto loans, which may make them particularly inviting to borrowers with lower credit scores.

Buy here, pay here auto loans can seem like a lifesaver, but their higher costs most likely are not worth it.

Exactly how does buy here, pay here, auto financing work?

When you purchase and finance a vehicle at a conventional car dealership, you pick a vehicle and then the dealer usually sends your information to a network of possible 3rd-party lenders. If you get approved for an auto loan, you’ll make monthly payments to the lender that financed the auto loan.

Buy here, pay here dealerships change the car purchasing process in a couple of principle ways. These dealerships sell and finance the vehicles straight off of their lots — you may even see them promote with “no credit, no problem” or “we finance” advertising.

If you are planning to purchase a car through a buy here, pay here dealership, you might be asked to confirm your income and proof of residency, but the dealer usually will not check your credit. Once the dealership establishes the loan amount you qualify for, they will show you vehicles inside that price range.

The average cost for a vehicle at a buy here, pay here car lot in 2017 was $7,201, with an average down payment of $801, as reported by the National Independent Automobile Dealers Association (NIADA).

Disadvantages of buy here, pay here financing

buy here, pay here auto loans are regarded as an easy way for those with bad credit to get qualified for financing — but they come with an abundance of inconvenient and expensive disadvantages.

They can be costly

buy here, pay here dealerships might not give you any slack when it comes to the interest you would pay on your loan. The average interest rate on these types of loans hovers around 20%, which is a lot higher than you would find at most credit unions and banks. buy here, pay here dealers might also slap you with other costs.

In the 3rd quarter of 2018, the average interest rate on a 4 year, used car loan was 3.44% from a credit union and 5.31% from a bank, as reported by the National Credit Union Administration (NCUA).

These higher costs could result in financial jeopardy: 1 in 3 borrowers defaulted on their buy here, pay here auto loans in 2017, according to the National Independent Automobile Dealers Association (NIADA).

In addition to the high interest and fees, you may end up paying a lot more for your vehicle than it’s worth. Conventional lenders usually restrict the loan amount on the basis of the vehicle’s value. However, buy here, pay here dealerships might not set those restrictions, meaning you could borrow — and pay — more than the vehicle is worth. This can put you upside-down on the auto loan as soon as you leave the lot.

The lender might install a GPS tracker

Since you may seem to be a bigger credit risk if your credit score is low, dealers want to make sure they can painlessly repossess the vehicle if you stop making payments.

Around two-thirds of buy here, pay here dealers install GPS tracker that tracks the vehicle or can stop it from getting started, helping the dealer retrieve the vehicle when you default on your loan. But giving up some of your privacy might be a non-starter for you.

They may not help build your credit

Making your payments on-time can help improve your credit and help you look safer to future lenders. But many buy here, pay here lenders might not report your payment record to the leading consumer credit bureaus. So even if you are on time with the car payments, you probably won’t reap the rewards of building your credit.

The payment structure is an inconvenience

You might be required to make weekly or bi-weekly treks to the dealership to make your payments, which can be an inconvenience compared with making payments online or by mailing in a money order or check.

Different options to buy here, pay here financing

Don’t think that a buy here, pay here auto loan is your only option. Here are a few things to think about.

Compare options

When buy here, pay here financing is all you have thought about so far, try looking somewhere else. Begin by looking at your credit scores, then compare auto loan estimates online and at your local banks and credit unions. Many used car dealerships provide auto loans to people with bad or poor credit.

Examine the annual percentage rates, duration of the loan, monthly payment cost, and any fees for each of the loan options. Inquire if the lender will submit your payment record to the main consumer credit bureaus, that may help you establish a credit history.

Pay in cash for a pre-owned vehicle

Go the old school route and save for a vehicle to buy with cash. Take the necessary measures to advance your credit over time, and ultimately you might be eligible to finance a newer vehicle with a lower interest rate and apply your pre-owned vehicle as your down payment.

Find someone to co-sign for you

When you have an inconsistent credit history, adding a co-signer to the car loan might help you get approved for an auto loan. Ask a family member or trustworthy friend that has a strong credit history and is aware of the risks. If you neglect to make a car payment, the co-signer is obligated to make the payment. Late or missed payments will show up on each of the borrowers’ credit reports, that may hurt both of your credit.

In a nutshell

Even if your credit scores are low, a buy here, pay here auto loan might not be the best option for you. You might end up paying a lot more than the vehicle is worth, along with large interest costs.

Prior to going to a buy here, pay here car lot, check your credit and think about applying for pre-approval from a couple of lenders. This can help you compare the loan terms and vehicle interest rates through each of the lenders. Knowing your options may help you get a good deal for you on an auto loan.

Find A Buy Here Pay Here Dealership In Phoenix, Arizona

If a bank or credit union lender doesn’t want to loan you money for a vehicle because of your credit, BHPH dealers are pleased to put you behind the wheel today. If you live around the Phoenix, Arizona area and are wondering if a buy here, pay here car dealer is the right choice for you, stop by In-Power Motors 5. We are a buy here pay here dealership in Phoenix, offering $500 down used cars. Our BHPH dealership also works with buyers with bad credit.

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