Buy Here Pay Here (BHPH) is a way to purchase a vehicle if you have bad credit and have failed to qualify for a loan from a bank or other lender. It is usually considered a last-ditch option if all else fails. BHPH financing means that you arrange an auto loan and make your payments at the dealership. You purchase the car through what’s referred to as in-house financing, typically at a higher interest rate. But remember, the dealership is taking on the risk because of your credit history.
Instead of making monthly payments to a traditional lender, you make weekly or bi-weekly payments at the dealership. Although some BHPH dealerships will accept payment by phone or online, many require that you physically bring a check or cash to their location. You therefore “buy” the car at the dealership and “pay” the installments at the dealership.
The key difference between a traditional dealership and one that specializes strictly in BHPH financing lies in the shopping experience. At a traditional dealership, the financial conversation is often the last part of your discussion, assuming you have good credit. After you’ve seen a few models and finally made your selection, the dealer then will help you explore finance options.
At a BHPH dealership, the process is reversed. The dealer will ask you a series of questions to find out about your current employment and income, monthly expenses, and possibly run a credit report to understand your credit situation before showing you available cars. Then, with your monthly payment range and down payment information factored in, the dealer will show you cars they feel you can afford.
BHPH dealerships are primarily designed for people who are credit-challenged but need reliable transportation. If your credit score is on the lower end of the scale or if you’ve had trouble qualifying for an auto loan, a BHPH dealership may be one of the places you visit during a car search and it may be the only option when you’ve been turned down by traditional lenders.
On the good side, one of the great ways to rebuild your credit is to make timely payments on an auto loan. If you consistently make your payments on time, many dealers will report that positive behavior to the credit reporting agencies. Over time, your credit score can improve. Make sure you ask the dealership if reporting is a policy they follow.
Understanding the pitfalls
BHPH vehicles are typically priced higher than at a conventional used car dealership. Since BHPH dealers are willing to work with customers with bad credit, they are taking on greater risk and thus can justify the higher prices.
Customers also can expect to pay a higher interest rate as well.
Payment terms are often rigid. There may not be a grace period for late payment. In the worst cases, the vehicle may be repossessed if a payment is late. Often BHPH dealers will install GPS mechanisms on their vehicles for quick location should repossession become necessary. Some BHPH dealers are more forgiving than others. Again, the key is to simply make your payments on time.
Bottom line considerations
- Make sure you understand the terms of repayment including interest rate and payment due date.
- Be confident that you will be able to make your payments on time and understand the consequences if you are late.
- Find out if there is a penalty for either paying off the loan in advance or defaulting on the agreement.
- Make sure the dealer will take the time to report your payment history on the loan to the credit bureaus so your credit score will improve.
- These are used cars so make sure you understand the terms of whatever warranty comes with the vehicle and get it in writing. In RI and Mass, there are USED car lemon laws that will apply.
In the Rhode Island area, we recommend the Shannon Motors dealer group.