Denver Buy Here Pay Here Buyers Guide
If you’re shopping for a buy here pay here dealer but don’t know how it works then we can help you. There are a lot of questions surrounding buy here pay here dealerships, how they work, how much money you need and how long the loan terms are. Our helpful buy here pay here guide for the Denver used car market can help you navigate through all the confusion. If you ever have any more questions about how buy here pay here works we’ll be more than happy to assist you over the phone 303-623-1926. For the time being feel free to read on.
1. Why is it called “buy here pay here?” It’s called buy here pay here because you buy directly from the dealer and pay directly at the dealership. If you go to a traditional dealer a bank or credit union makes the dealership an offer and charges you interest. You end up paying the bank or credit union a monthly payment and the dealer from that point on is essentially out of the loop unless you go their for service. At a buy here pay here they finance you directly themselves which means you pay directly at the used car dealership. They finance you out of pocket which becomes a more high risk proposition as they don’t have as big of a financial backing as Chase bank, TCF, US Bank or any other major bank or credit union.
2. When did buy here pay here start? Back in the 1970’s there was a USA savings and loan crisis which was very similar to the 2008 financial melt down. This made it hard for people to get loans and apply for credit. Just like 2008, the unemployment rate was rising and the economy was shifting from a production-based economy to a service-based economy. Vehicle prices increased and customers became leery of buying new vehicles and had taken a rather large hit to their credit rating. Banks and credit unions rejected these customers but they still needed a used car to continue on with their life. Buy here pay here dealerships began to spring up or dealerships would offer special finance to accommodate these customers.
3. How does buy here pay here in Denver work? If you have bad credit because of a divorce, bankruptcy, foreclosure, loan default or any other credit problems then most buy here pay here dealerships will work with you. Some of them even accept low down payments of $99 and often times a $100-$300 will let you drive off the lot while paying the rest of the down payment over 45 days.
The buy here pay here approval process works backwards. You don’t look at cars first. Instead, you go in and fill out a quick 5 or 10 minute application and do a customer interview. The finance manager usually asks you questions such as “how often are you paid” and “how much are you paid” and other similar questions. These are to see what you can and can’t afford.
The dealership wants to make sure you can make your payments. They don’t want to jam you into a car that doesn’t fit your budget or you’ll have a high rate of default on the loan. At a regular dealership they sell your loan to a bank so they don’t have to deal with that part of it. At a buy here pay here, because you pay them directly, the customer dealer relationship is important.
Once you complete the application and customer interview they then show you several different cars that will fit your budget. You then take them on a test drive and see which one you like the best. From there you then pay your down payment and get to drive off with the car.
4. How does the down payment work? The down payment is one of the most important aspects of buy here pay here. Often times it will determine what car you can qualify for. When buy here pay here first started the dealership required a down payment that equaled the cost of the car or was at least a 3rd or half of the cost. The cars offered at the time were very cheap and very basic as there was a lot of risk involved. Nowadays it’s much different. There is a much greater demand for nicer buy here pay here cars than ever before so buy here pay here dealers have to be much more flexible with their down payment parameters.
There are places that can finance you for $99 down and sometimes even less. There are other places where you can put little to no money down and come up with the rest over 45 days. If you go to a regular car dealership they oftentimes require a $1,000 down to even get started and that’s with really great credit only.
Most people want to put little money down and drive away with the car. This can seem more convenient but cost you $1,000’s over the length of the loan especially if you have a long term loan. If you put more money down up front you’ll actually save believe it or not. It will lower your monthly payments and also take the principal down which means the dealership doesn’t collect on money that was never there! Resist the urge to put little money down and put as much down as possible.
If you can’t put a lot of money down there are always other options and more and more dealers are offering $99 down with deferred payments.
5. How long is the loan term? The length of loan is often 3 years or less. I’ve never really heard of any longer but I’m sure they are out there. You should avoid longer loans as the interest is high and could put you in an even tougher financial situation than when you first started. Short term loans is one of the biggest benefits of buy here pay here as you’ll own the car much faster and lose a lot less on depreciation. Owning the car faster will give you an opportunity to recover the higher interest rates as once you’re done paying it off you can sell the car and buy a newer one. You can’t buy a newer car unless you have raised your credit score which is one of the most important aspects of going buy here pay here shopping.
6. So what’s the deal with my credit score? Most buy here pay here dealers don’t report your credit. They aren’t required to do so. It’s important to find a buy here pay here dealer who does report your credit otherwise you’re wasting your time. One of the reasons you had to go to a buy here pay here dealership is because you have bad credit but that doesn’t mean you have to have bad credit forever. You should have a plan on how to rebuild your credit history and going to a buy here pay here dealership is a great start.
7. Why do buy here pay here dealerships get a bad reputation? The reason being is they are slightly more expensive than going to a traditional dealership. There are some bad dealers, just like other dealerships, that also may not take car of their inventory. When buy here pay here first started it was unregulated and kind of the dark area of car sales. In the 1970’s the stereotypical shady buy here pay here salesman was what people thought of at the time. A lot has changed as there are lots of laws and regulations to protect the consumer when they buy a vehicle. Some of the laws and regulations include the fair and accurate credit transaction act, the safeguards rule, the disposal rule, the fair debt collections practices act, state and federal unfair and deceptive practices laws, the red flags rule, the rick based pricing rule, state usury laws, the truth in lending act, the used car rule and the privacy rules. That’s a lot of rules to protect customers. If you feel like you’ve been taken advantage of look to some of these laws to see if you’ve got a case.
8. Am I protected against breakdowns? Buy here pay here, like other used car dealerships, sell their cars as is no warranty. That means once you drive off the lot it’s you’re responsibility to maintain and fix the car unless you buy a warranty. The good dealerships will fully service their inventory before selling it. There are some bad apples out there who will sell you inventory that is a ticking time bomb. Make sure you do your research before going to a particular dealership. Don’t rush through the buying process. Instead take your time and make sure you know what you’re getting into.
Buy here pay here dealerships are more expensive than regular dealerships because they are high risk. If you have bad credit and have no other choice but to shop at a buy here pay here dealership than at least you’ll know what to look for. Financing and paying off a car is a great way to rebuild your credit history. It’s true that buy here pay here dealerships have interest rates but there is a reason for this. The market dictates price in any business in the world. At a buy here pay here dealership they have a high rate of loan defaults, customers stealing their cars, customers driving their vehicles into the ground and abandoning them in the middle of no where among many other problems. This drives up the price of the car for the good paying customers as there are some really bad situations that end up costing the dealership thousands. Sometimes the dealer has to recover a car 5 states over because a customer disappeared with it and never returned or even made a payment. Cars get chopped up and sold for parts as well.
At the end of the day there are good and bad customers and good and bad dealerships. Make sure you focus on weeding out the bad buy here pay here dealerships whether you shop in Denver, Aurora, Lakewood, Englewood, Thornton, Northglenn, Longmont or Golden.
If you have any questions please feel free to give us a call at 303-623-1926 and we will answer any and all buy here pay here related questions.