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What Is a Buy Here, Pay Here Dealership & How Does It Work?

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In a Nutshell

If you’re shopping for a car and you have bad credit, you may have trouble getting financing. You can try to get a personal loan from a local bank or a friend or family member. But if that doesn't work, you may have to go to a buy here, pay here (BHPH) dealership. These dealers offer in-house financing to people with bad credit. If you really need a car, they can help you get one. But there are also downsides to financing with them. Read on to learn more about the pros and cons of buy here, pay here dealerships.

Written by Mark P. Cussen, CFP® , CMFC.  
Updated September 20, 2021


If you’re shopping for a car and you have bad credit, you may have trouble getting financing. You can try to get a personal loan from a local bank or a friend or family member. But if that doesn't work, you may have to go to a buy here, pay here (BHPH) dealership. These dealers offer in-house financing to people with bad credit. If you really need a car, they can help you get one. But there are also downsides to financing with them. Read on to learn more about the pros and cons of buy here, pay here dealerships.

What’s a Buy Here, Pay Here Dealership?

A buy here, pay here dealership is a car dealer that also provides auto loans. These dealerships specialize in helping people with bad credit get a vehicle. They usually charge high interest rates but require a relatively small down payment. Buy here, pay here dealerships tend to sell used cars with low values. Traditional dealerships usually focus on selling new cars or used cars that are in excellent condition.  

Buy here, pay here dealerships have two sources of profit. One source is the profit that they make from selling cars. The other source of profit comes from making car loans. This is another way these dealerships differ from traditional dealerships. Traditional dealers only make money from selling cars. They do not offer car loans in-house like buy here, pay here dealerships do. Traditional dealerships use third-party financing from banks and other lenders that specialize in auto loans. 

When buy here, pay here dealerships first originated back in the 1970s, they charged a down payment that was more than the total profit that they would make on the sale. Then, if the customer became unable to make the payments on the car, the dealership could simply repossess the car and resell it to another buyer. But as competition has increased, down payments have decreased. 

BHPH Dealerships and Bad Credit

Many buy here, pay here dealerships advertise no credit check car loans, which appeal to buyers who have bad credit. They know that most buyers with bad credit will buy from them because they don’t have any other way to get a car. If you have bad credit or no credit history, don’t have much money, or can’t get financing elsewhere, this type of financing can be a good idea. But it won’t always help improve your credit score. This is because many buy here, pay here dealerships do not report on-time payments to the credit bureaus. 

Advantages and Disadvantages of a BHPH

There are both advantages and disadvantages to getting a vehicle at a buy here, pay here dealership. You need to weigh all of the variables before signing on the dotted line.

The Pros of a BHPH

  • You don’t have to have good credit. You don’t have to have good credit to get a car loan at a buy here, pay here dealership. If you have poor credit or no credit history, it’s no problem.

  • The process is simple. Buyers can drive out of a buy here, pay here auto dealer in their new car after doing minimal paperwork. There’s no credit application, pre-approval, or credit check. Though some dealers may require proof of residence. 

  • They accept trade-ins. As with conventional used car dealerships, most BHPH dealerships will allow you to trade in your current vehicle. Many BHPH dealerships also provide instant cash offers on a borrower’s current vehicle. 

The Cons of a BHPH

  • They have high interest rates. BHPH dealerships charge higher rates on their auto financing than conventional lenders that use finance companies. Buy here, pay here financing is always more expensive. 

  • You’ll likely need money for a down payment. The average down payment for cars purchased at buy here, pay here dealers in 2018 was $950. If you aren’t able to come up with the money for a down payment, it may be difficult to secure financing. 

  • Your payments probably won’t be reported to the credit bureaus. As mentioned previously, many BHPH dealerships do not report borrowers’ payments to the three major credit bureaus: Experian, Equifax, and TransUnion. This means that this loan won’t help build your credit like most other loans do.

  • Your vehicle may be equipped with a tracking device. Because of the risk of borrowers defaulting on their car loans, the dealership may install a location-tracking device on the car. They can also install a device that makes it impossible to start if the customer misses a payment. This makes repossession easier for the dealer if borrowers fall behind in their payments. 

  • There are limited warranties and limited selection. BHPH dealers may only provide a 90-day warranty on their cars. Often the car selection at these dealerships is more limited than you’ll find at traditional dealerships.

Let’s Summarize...

Buy here, pay here car dealerships cater to buyers who have bad credit or no credit history. They finance their car sales in-house and make a substantial profit off the loans because of their high interest rates. BHPH lenders may not be very forgiving with those who fall behind on their monthly payments. But this may be the only option for buyers who can’t qualify for financing with traditional lenders like a bank or credit union. As with any other type of car dealership, it pays to shop around and see where you can get the best deal. Some dealers may be willing to work with you more than others. 



Written By:

Mark P. Cussen, CFP® , CMFC

LinkedIn

Mark has over 25 years of experience in the financial industry, and has worked with investments, insurance and mortgages as well as income tax preparation and comprehensive financial planning. His writing work includes insurance and securities training manuals and educational art... read more about Mark P. Cussen, CFP® , CMFC

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