How to finance your car, truck, or SUV with bad credit or no credit
Let’s face it, buying a car from a car dealership can be stressful sometimes. From dealing with a pushy car salesman to sweating it through the financing approval process, the excitement is sucked out of the entire experience in many cases.
Due to the stressful nature of car dealerships, many gravitate to a buy here pay here dealership as their source of purchasing a vehicle.
While most are vaguely familiar with bad credit car dealers, all too many are misled or not well informed as to the opportunities this type of in-house financing presents to those looking for an automobile, especially those who are uncertain of the quality of their credit score.
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The following is a complete guide to buy here pay here financing, including what it is, how it works and how much the vehicles cost you.
What is a buy here pay here car lot?
Buy here pay here (BHPH) is a form of automobile dealership in which the loan for the vehicle is provided by the dealer themselves. You make your car payments directly to the dealer, not the bank.
In fact, BHPH dealers have gained in popularity in the past fifteen years. As shown below, the interest in it as a form of car buying has steadily increased, and the trend is likely to continue moving forward.
Source Credit: Google Trends
The biggest difference between a buy here pay here dealership and a more traditional dealership is that with buy here pay here, almost everything goes through the local car dealer directly. This means car buyers can simply make their car loan payments directly to the dealership through in-house financing and the contract that’s agreed upon for the vehicle is between the dealership and the buyer only, rather than traditional financing through other lenders, like banks or credit unions.
The difference between BHPH and financing
The most glaring difference between most dealers and a buy here and pay here place is the way financing is handled. In an auto sale at a traditional car dealership, the credit is provided by traditional lenders like a bank or other form of outside institution, such as a credit union.
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Where are buy here pay here car lots?
Buy here pay here car lots can easily be found in almost every city in the United States. Anyone who has ever looked out of the window while riding down a highway has likely seen this kind of lot for used cars.
For the most part, a BHPH dealer looks very similar to a traditional car lot. In many cases, these lots have a sign on or near their place of business, stating they are indeed a buy here pay here place or, more subtly, state that they finance, or do in-house financing. In other words, a car dealership with a “buy here pay here” or “we finance” or “no credit check” sign is likely a BHPH dealer.
You can find these car lots through a quick online search. An easy way to find one nearby is to search for buy here pay here near me and it will show you the dealers that are closest to you. Or you can do it the old-fashioned way and drive around your city looking for auto dealerships that offer in-house financing.
Many used car dealers will also let you pay cash for a vehicle, which a lot of people do to avoid the hassle of potential late payments and finance charges.
Are buy here pay here scams?
Since BHPH lots often sell cars to people that have few other options for financing, many have a misconception that all buy here pay here dealerships are scams.
However, most BHPH lots are usually honest and upfront about what to expect when paying for the vehicle.
Since they are often taking on huge risk on their end, many dealers have a more strict pay policy and higher interest rate than many traditional dealerships, but most dealerships can be trusted to be honest and follow the rules set forth in the contract provided with no hidden fees or other tricks like some finance companies are sometimes known to do.
Be sure to read the contract closely and ask the necessary questions before signing, and you should be able to ensure you are not subject to a poor, misleading deal with a BHPH car dealership.
Related: Buy here pay here mistakes you can avoid
How does buy here pay here work?
In most areas buy here pay here car lots work the same way as a regular dealership, with the exception that, in a regular dealership, you select your car or truck first, then you talk about financing. At a BHPH lot, you will talk about financing first (how much down you have, whether you have a co signer, how much you can afford monthly, etc.) , and this will determine which vehicles will fit your particular financial situation. You will then choose a car or truck within those parameters.
How to buy a car from buy here pay here
After finding a buy here pay here dealership you think has a good selection of vehicles and a trusted reputation, simply visit the car lot, at which point a salesman can show you the vehicle(s) you are considering, allow you to participate in a test drive and assist you by answering any questions you may have.
However, some dealers may examine your FICO scores first, and consider the amount you have allotted for a down payment in order to determine whether or not the car is a realistic purchase financially.
While BHPH less likely to turn down someone who has a steady income and significant money to put down, a spotty payment history and small initial amount down may influence the interest rate and the list of vehicles from which they can choose.
What are the buy here pay here requirements?
At a regular dealership, you are likely to need an extensive list of documents, including bank information and proof of residency.
With BHPH, there is not much that is required on the day of purchase. In most cases, the following is all that is required:
Proof of income
Proof of residence
In some cases, proof of residency may be required. However, buy here pay here dealerships are much more likely to work around missing documents than a traditional dealership. Plus, there are no credit reports required.
What happens if you don’t pay buy here pay here
One of the main reason buy here pay here skeptics have negative feelings toward this type of car lot is because of the crazy stories about what happens if a payment is missed.
While there are buy here pay here dealerships that repossess vehicles if the payment is a minute late – or possibly even have a GPS and a kill-switch installed to keep the car from working if a payment is missed – most dealerships are more lenient.
Be sure to discuss the policy on missed payments before purchasing your vehicle through a bad credit car dealer.
Most of these car lots are not as heartless as they are perceived – they actually WANT you to make your payments. However, consistently missing payments almost always leads to the car being repossessed and a huge hit to your credit score at the minimum.
How much are buy here pay here cars?
The cost of pre owned vehicles at this kind of dealer can be somewhat tricky to calculate. While the list price is typically similar, if not cheaper, than what can be expected at a traditional auto dealership, the final price after interest is dependent on various factors and can in many cases be more expensive than what one might pay for the same vehicle purchased at a traditional used auto dealership.
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There are various factors that determine the final price of a vehicle, including the buyer’s credit history, how much money they’re putting down and the length of their contract. For someone looking to pay the total amount in cash up-front for the vehicle, BHPH is an amazing way to find a great deal.
For long-term contracts, however, it is important to negotiate interest rates and find the best deal possible to avoid paying more than necessary for a car or truck.
What is the average interest rate at a buy here pay here?
The average interest rate at this kind of dealership is often exaggerated. Many who are hesitant to purchase from these dealers are concerned with having to pay crazy interest rates – the kind that some credit card companies charge.
While some buy here pay here dealerships may charge the highest interest rates possible, the average interest rate through BHPH financing tends to land between 15 percent and 19 percent, with the maximum rate usually dictated by the state in which you reside.
With that said, there are a number of considerations that factor into the interest rate, perhaps none more so than the buyer’s credit score. For those credit challenged borrowers with a spotty credit history, an interest rate around 20 percent is actually quite reasonable.
Did you know?
All other things being equal (job, down payment, etc.), having zero credit is better than bad credit. With zero credit you can often get low interest rate credit union financing. And of course, we can help you with that too. 😊
Can buy here pay here sue?
Another major fear of many buy here pay here skeptics is that they may be sued if they are unable or fail to make a payment.
The short answer is yes, it is possible for the dealership to sue the buyer, especially if the car is not able to be resold for the amount established in the contract as they can then sue for deficiency. A buy here pay here is a lender, and the failure to make the necessary payments likely means the contract was not satisfied in its entirety.
In the event the dealer sues, they may be able to garnish wages (see below). However, it is rather rare for any dealership to decide to sue. In most cases, the failure to make payments results in repossession and a critical hit to the buyer’s credit.
Can buy here pay here garnish wages?
In the event a buy here pay here decides to sue the car buyer for deficiency when the contract is not satisfied and they win the lawsuit, they are able to garnish wages. In more severe instances, they may be able to garnish up to 25 percent of your wages.
However, most dealerships choose not to sue in the event a buyer is unable to continue payments, which means they are not able to garnish wages.
Of course, the best way to ensure that a dealer does not decide to sue – and therefore is unable to garnish your wages – is to make all of the necessary payments without being late. In the event you do everything possible to make the payment happen and are still unable to, be sure to let them know as soon as possible as communication could be the key to avoiding a lawsuit. They’re in the business of selling cars, not repossessing vehicles and suing people.
Does buy here pay here go on your credit?
Yes, it should go on your credit. However, the answer to whether or not your car payments go on your credit is more complicated than a simple yes or no answer.
The fact of the matter is not all dealers that offer in-house financing report to the credit bureaus, which means your timely payments don’t always help your credit score.
Ideally, you should want your on-time payments to get reported to all credit agencies. Be sure to discuss whether or not, and under what circumstances your dealership reports your payments.
By choosing a trustworthy BHPH dealership that has a history of consistently reporting to the credit bureaus, you can ensure your payment is reported and your credit score will rise – assuming those payments are on-time, of course.
Does buy here pay here help your credit?
Anytime you take out an auto loan with a lender and they report the routine payments to the credit bureau, then you have the chance to help your credit. Therefore, a car loan should indeed help your credit if the payments are made in a timely manner.
However, whether or not an auto loan helps your credit depends on several different factors. First and foremost, you must stay up-to-date on all payments throughout the entirety of the contract, especially if your goal is to raise your credit score.
Secondly, be sure to confirm that your chosen dealership is reporting your car payments to the credit bureau. Otherwise, all of your hard work and consistency with payments may not affect your credit score at all.
Does buy here pay here build credit?
Buy here pay here does build credit, assuming all of the payments are made on time, the contract is fulfilled entirely, and the lender – the buy here pay here dealership – reports the payments to the credit bureau.
However, car loans can have the opposite effect on your credit score as well if the payments are made late and the contract is not fulfilled, which can lead to the repossession of the vehicle. When payments are made late with any financing you agree to, you can see your credit score really take a hit and make it difficult to get another loan in the future.
Consequently, it is very important to stay on track with all of the scheduled payments and communicate well with the dealership if a payment is going to be made late. Be sure to ask if there is a grace period for your payments.
Do buy here pay here car dealerships report to credit bureaus?
Buy here pay here car dealerships most often report to credit bureaus, although they are not obligated to do so. In some cases, these poor credit car dealers may not report to credit agencies, which means paying on time won’t help your credit score.
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When attempting to raise your credit score via an auto loan, it is very important to ask and ensure that the buy here pay here dealership is reporting your routine payments to the credit bureau.
By ensuring your payments get reported properly, you can begin to raise your credit score, which means more options will be available to you the next time you need to purchase a vehicle.
Can I report payments to credit the bureau?
Unfortunately, you cannot directly report payments to a credit bureau, and the reports need to come from the buy here pay here dealership directly.
Because of this, it is important to ensure that your dealership reports the loan and meets all of the necessary requirements at the start of the contract. It is also important to ensure they are reporting the payments each time. Otherwise, the payments may not be reported and your credit score will not rise as a result. Don’t make that mistake.
There are three main credit bureaus that buy here pay here places are able to report to, which are Equifax, Experian and TransUnion.
By ensuring the payments are reported to the credit bureau, you can raise your credit score with timely payments.
Can you return a buy here pay here car?
In some cases it is possible to return a buy here pay here car, but doing so most often is still reported as a repossession and subsequently affects your credit in a negative manner.
However, each specific instance where the return of a car is unique, and the exact details can be found in the contract established by the dealership and the buyer.
In more unfortunate situations to the car buyer, the car may not be able to be returned without a lawsuit being filed for deficiency, which occurs when the dealership is unable to resale the vehicle for the amount left on the contract.
Each car lot is different, however, and it is important to establish good communication with the dealership to avoid any tricky return situations.
How to get rid of a buy here pay here car
There are essentially two ways to get rid of a BHPH car, which is to either return the car, trade it in or sell it yourself.
It is best to avoid returning a car, since doing so can have some severe consequences, including a drop in your credit score, getting sued and even the garnishment of your wages. Even if you bring the car to the dealership before the contract has ended, it still is reported as a repossession.
Can you trade it in? Of course. You can always trade your vehicle in for a newer one. This is most ideal if the value of the car is greater than what is owed. In the event it is not, the difference in value between what the vehicle is worth and what is owed is added onto the loan amount for the new vehicle.
What happens if you return your car to a buy here pay here?
It is always best to try to fulfill the contract completely when purchasing a buy here pay here vehicle since returning a vehicle is not typically beneficial to the buyer. You will likely lose any down payments and monthly payments you already made.
However, in the event you simply cannot make the payments on your loan, then returning it to the dealership – while not ideal – may be the best solution.
In most cases when a buy here pay here car is returned, the car is reported as repossessed and the car buyer takes a hit to their credit score.
In the event the car is returned in bad condition and the dealership is unable to resell the vehicle, they may choose to sue for deficiency (which is the difference between what they sell it for and what you owe), in which case they would be able to garnish wages if they win the case.
Due to the risks to the car buyer when returning a vehicle, it’s important to do everything possible to keep the car and pay back the loan.
How to trade in a buy here pay here car
A trade-in can be a somewhat complicated process for a dealership, especially if the car is worth less than what is owed.
Essentially, there are two different processes for trading in a car. The first is when the car is worth more than the remaining payment amount, which is a good thing for you, as a buyer. In this instance, the dealership will pay the remaining amount and possession of the car is given to them, allowing you to then purchase a new vehicle.
Things become more complicated in the event the car is not worth as much as what is owed, in which case the amount owed on the vehicle after trade-in is added onto the loan for the new car.
Buy here pay here low down payment
New car, low monthly payment, and low money down; the holy trinity of purchasing a car for someone who has low credit scores. In the real world, credit scores signify risk and, if it’s low, the only ways to mitigate that risk for the lender are to:
- Require a high down payment
- Charge higher interest rates
- Look at stability (length of employment, time at current residence, etc.)
And the newer the car or the more valuable it is, typically the higher the down payment will be. This is why BHPH places sell vehicles that are a few years old or older – to lower the average down payment and monthly payment obligations for their buyers.
Another option available, in order to reduce the cash required up-front, is to trade-in a vehicle as part of your buy here pay here down payment. This, in turn, lowers the amount financed and the monthly payment too…
Check out this handy car loan payment calculator that determines typical interest rates and monthly car payments based upon credit scores: