Buy here pay here with loan application, glasses, pen and calculator

Car Life Lessons: “Buy Here Pay Here” Dealerships

Getting a new car; for some of us, it’s a moment of elation when we get to see what’s out there, maybe go for a test drive or two, and find a new travel companion for the next few (hundred?) thousand miles. But for others, it can be a time of panic, overwhelming options and terminology, and high-pressure tactics that just make us want to run and hide. Like so many things in life, going to buy a car can be made so much easier with just a little research and knowledge. I know, that sounds like having to write a term paper in high school, but I promise it’s not that bad. Fortunately, the Internet has made these things easier than ever before, which is how you’ve found yourself here, ready to learn and go into your next car-buying experienced well-armed with information. So let’s take a look at “Buy Here Pay Here in Lexington” or BHPH, dealerships, which have become increasingly popular over the last few decades. We’ll start by learning about what they are exactly and how they work. Then we’ll consider the benefits and drawbacks that they offer compared to other dealerships, and finally figure out what all this means for you when you consider one car dealership or another. But don’t worry, there won’t be a test at the end!

What is a BHPH Dealership?

A Buy Here Pay Here car dealership is essentially a dealership that offers its own financing for a vehicle loan, rather than relying on loans from third-party banks. This can be done in different ways, but it usually involves a “related finance company,” or RFC, started by the dealership in order to offer loans for their customers. In other words, traditional dealerships require a vehicle be purchased with cash or that a buyer receive a loan from a bank or similar lending institution. BHPH dealerships cut out the bank middleman and instead provide financing through a loan for customers who cannot purchase a vehicle outright with cash.

How Does Buy Here Pay Here Work?

Different dealerships can handle the process in various ways, but it is not unusual for you to begin your experience at a BHPH dealership by discussing your finances and looking at your potential loan-approval first. Rather than spend a half hour looking at cars you might not qualify for, dealerships will usually see how much of a loan you can receive based on your finances, employment, and credit history. Once you figure this out, then they will show you vehicles that fall within your pre-approval, which can feel backwards but ends up saving you time and the potential disappointment of falling in love with a car only to find out it’s beyond your means.

Once your loan is approved for a certain amount you can then look at different models available and choose one that fits your needs. All of your paperwork is done there at the dealership and a payment schedule is set up. You will then make all of your loan payments directly to the dealership, rather than to a bank that provides a loan. Sometimes this must be done in person, often multiple times per month, so it’s important to choose a Buy Here Pay Here dealership that is close to you and easy to get to regularly to make your payments.

What Are Some Advantages of a BHPH Dealership?

For some people, a Buy Here Pay Here dealership is really ideal. The biggest advantage these dealerships offer is that they will often approve loans for customers with no or bad credit. For people with bad credit, getting approval for an auto loan can be very difficult and ultimately frustrating. A BHPH dealership, however, usually requires only a permanent address and decent employment history to approve a loan.

The process of going through a BHPH loan is also typically faster and easier than through a traditional bank or other lending institution. There is no third-party involved, so you can work quickly with your salesperson to get your loan potential and paperwork figured out. You also know exactly who to make payments on your loan to since it is through that dealership and not a bank or other organization.

For people with little cash to put down on a vehicle, Buy Here Pay Here dealerships are also typically a great choice. There is usually little or even no money down required at the time of signing. Other dealerships can often require thousands of dollars up front, which makes buying a new or even pre-owned vehicle quite daunting.

What Are Some Drawbacks of a BHPH Dealership?

Although there are some great advantages to going through a BHPH dealership, there are also some potential issues to consider. First and foremost, auto loans through a BHPH dealership and RFC usually have higher interest rates than those from banks. These can be substantially higher and make the overall lifetime payments on a car through Buy Here Pay Here a lot higher than with a loan from a bank. For people who cannot qualify for a bank loan, however, this tends to be better than not having a car.

Sometimes loans through a BHPH dealership are advertised as a great way to build credit, but this depends on the actions of the dealership. If the dealership does not actually report that payments are being made on time to credit bureaus, then those payments won’t help your credit. It’s important to ask about this when considering a Buy Here Pay Here loan to make sure that it will actually help you with rebuilding your credit. Also be sure to ask about late payment penalties and grace periods, so you understand how long you have to make a payment before repossession begins.

Beareded car salesman giving thumbs up

Are There Other Options?

There are some other options out there for getting financing for an auto loan, primarily traditional loans from banks and similar organizations. A bank-loan will usually have a lower interest rate than a BHPH loan, though loans to people with low credit scores can still have high-interest rates. You also need to be able to qualify for one of these loans, which you might not be able to determine until after you have already found the car you want and gone through a lengthy paperwork process.

Of course, you can also work with a private car seller rather than an auto dealership. This completely bypasses any sort of loan, as you pay directly to the seller. To buy a car or truck from a private seller, however, you typically need to be able to pay the full amount in cash, and you don’t have the safety net of a warranty if anything goes wrong with the vehicle.

So What Do I Do?

That’s probably what you’re asking yourself after reading all of this. The first thing to do is to be informed so you can make good decisions, which you’ve already done by learning about Buy Here Pay Here dealerships, so good job! Next, find out what your credit score looks like since this is a major factor in determining whether you can get a bank loan or not. If you have good or excellent credit, then you can probably go to a dealership and receive bank financing for your purchase. If your credit is poor or not yet established, then a BHPH dealership might be your best choice, and now you know what to expect and look for.