Buy here pay here has been around for quite some time now. It has most recently gained popularity when the economy took a nose dive. Overnight people’s credit went up in flames and so did their income.
Most dealerships require a certain credit score before you can be financed for a vehicle. If you don’t have that score then they won’t even entertain you.
Once you have a high enough score you usually need a down payment of $1000-$1500.
This leaves people with bad credit with very few choices other than to turn to a buy here pay here dealership. For whatever reason, there are a lot of common misconceptions when going to a buy here pay here dealer. More often than not they have a really bad reputation as dealerships and car lots who charge high-interest rates and repossess you only to sell the car again. This isn’t true and here’s a list of the buy here pay here myths finally debunked.
1. Out of control interest rates and fees: There is a myth going around that buy here pay here dealerships charge 30% interest rates. While there are some states that allow this, it isn’t always true. Most states have a maximum allowed interest rate of between 17-20%.
If you go to a regular dealership and they put you under the special finance category they charge you the same thing, a maximum of 20%.
In a sense, there is no difference in special finance and buy here pay here as they deal with the same types of customers. The interest rate is higher because the loans are high risk and often end up charging off or defaulting before ever getting paid. Cars also vanish or get stolen and chopped up for parts never to be seen from again.
2. Unregulated old west of the car business that doesn’t report credit: The buy here pay here auto industry is unregulated and the dealerships can do whatever they want. This is not true and there are lots of regulations a buy here pay here dealership has to adhere to or pay enormous fines or get their license taken away.
Here are the regulations that they have to follow or lose their business if they don’t:
- The Fair & Accurate Credit Transaction Act
- The Safeguards Rule
- The Disposal Rule
- The Fair Debt Collections Practices Act
- State & Federal Unfair & Deceptive Practices laws
- The Red Flags Rule
- The Risk-Based Pricing Rule
- That’s a lot of rules to follow.
- State Usury laws
- The Truth in Lending Act
- The Used Car Rule
- The Privacy Rule
Credit reporting is almost standard in the buy here pay here business now. It may not have been at one point but rebuilding a customers credit history is a priority now.
3. Your down payment will be high enough to cover the cost of the old car: When buy here pay here first came out this was standard practice but things have changed. Cars have skyrocketed in price and have driven up the cost in wholesale markets all over the United States. If a buy here pay here dealer required that much down they’d never sell any cars.
A lot of dealerships offer a low down payment program or break your payment up over a certain period of time such as 45 days. It makes it easier to come in and buy a car while also managing your own bills.
4. Buy here pay here dealers repossess cars and also charge lots of late fees: Anywhere that loans money charges late fees and if you don’t pay has a legal right to take their cars back. All of this is within the law. They can’t repossess a car unless it’s within their legal right, which is after a grace period that varies from state to state.
So if you’re 10 days late, for example, they may be able to repossess your car after sending you a right to cure in the mail. Until that point, they can’t take your car back until you officially default on your loan.
Some people may think that buy here pay here dealers do this on-purpose to resell the car. This doesn’t make sense from a business standpoint as there are costs and fees to taking the car back and it disrupts the flow of business in general.
These days dealers are more interested in getting their customers back on their feet to rebuilding their credit history.
Buy here pay here has a bad name but it is slowly changing. The worst offenders are slowly getting weeded out by regulations and poor business practices.