What Is Buy Here Pay Here?

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  • What is it?
  • Same as financing?
  • How does it work?
  • Good idea?
  • Affect on credit
  • What if you stop paying?
  • Other options
  • Next steps
“Buy here, pay here” is a way for people with poor credit to get approved for a car loan at a dealership. It may also be described as a “no credit check” loan. But buyer beware, the high cost of this financing option may not be worth it.
Your car loan is just one of the ongoing car-related payments you will need to make as a car-owner, so think carefully about what you can afford. You will need to pay for maintenance and insurance on top of your loan payment. Jerry helps you find car insurance and uncover great coverage at a low price.
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If you’re looking to buy a car through a buy here, pay here program, read on!
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What is buy here, pay here?

Buy here, pay here is an onsite option for financing a vehicle purchase directly through a dealership, rather than with a third party lender or a bank. Buy here, pay here (BHPH) is most often utilized by people who have poor credit and therefore cannot access traditional loans via banks or credit unions.

What is the difference between buy here, pay here and financing?

Buy here, pay here is one type of financing.
BHPH means that you, the borrower, work directly with the dealership to negotiate your purchase and take out a loan through them. Other types of financing include banks, credit unions, or online lender-supported loans.

How does buy here, pay here financing work?

The traditional model of car financing is when the dealer works with a third-party lender to help you finance your vehicle.
Instead, buy here, pay here dealerships offer loans right on the lot. If you see a sign that says “no credit, no problem” or “we finance” then you may have found a buy here, pay here dealership.
To access BHPH financing, you will usually need to provide a down payment in addition to proof of residence and income verification. However, most dealerships usually don’t check your credit. The BHPH process is quite simple and straightforward compared to the lengthy approval process at a bank.
The BHPH process starts with getting approval for the loan. The dealership will calculate the amount you are qualified to receive, and then they will show you vehicles that fit within your price range.
Keep in mind that your choice of vehicles will likely be limited to older, lower-value vehicles. One 2018 study revealed that the average down payment was $950 and the average cost for a car with this type of financing was $7004.
Once you sign a buy here, pay here deal, you will make your payments directly to the dealership. Be aware that the process is attractively simple, but it could end up costing you more over the long-term in added fees.
Key Takeaway Buy here, pay here options require a down payment, but most dealers won’t check your credit score in order for you to be approved.

Is buy here, pay here financing a good idea?

On the one hand, this type of financing is very helpful for people with bad credit who might otherwise struggle to get a loan. If you have no other way to finance a vehicle purchase, then BHPH may be an option for you.
However, there are some drawbacks you should be aware of before signing up.

Buy here, pay here can be expensive

Your loan starts with the principal, which is the price of the car. BHPH dealers will often require higher down payments since you are a riskier borrower.
Your loan will also include interest payments.
Buy here, pay here financing with a dealer typically means you will have to accept much higher interest rates (around 20%). If you finance with a bank or credit union, your interest rate would be closer to 3 or 5%. Over the life of your loan, this difference could add up to hundreds or thousands of dollars in additional interest.
There may also be extra fees tacked onto a BHPH contract, so read the fine print carefully.
Overall, with the high interest rates and extra fees, you could wind up paying more than your car is actually worth with BHPH financing. This is known as being “upside down” on your loan. Traditional lenders typically limit the loan amount based on the value of the vehicle, but buy here, pay here dealerships may not.

You may have to install a tracking device with buy here, pay here financing

Until you pay off the vehicle, it is technically co-owned by the dealership.
To protect their asset in the meantime, the dealership may require that you install a device that can track the vehicle’s location or even stop the engine. This is intended to help them recover the vehicle if you stop making payments. It does mean sacrificing some of your privacy.

The payment schedule for buy here, pay here loans can be awkward

Traditional lenders usually work on a monthly payment cycle. But a buy here, pay here dealership may require you to make payments more frequently, such as weekly or biweekly.
On top of having to make more frequent payments, your payment methods may be more limited. Since you are paying the dealership directly (not a bank), you will need to utilize their approved methods. A dealership may only accept payments by phone or check, for example.
Key Takeaway Be prepared to make weekly or bi-weekly payments as part of a buy here, pay here program.

Will buy here, pay here financing affect my credit?

Maybe. One possible outcome is that you make on-time payments and it helps to boost your credit score. However, it’s equally possible that your dealership will not report your payment history to the mainstream credit bureaus.
If you buy through a small or off-the-beaten-path lender or dealership, there’s just no guarantee either way.
Key Takeaway If you’re buying a car through a BHPH program and want to boost your credit, ask your dealer to report your payments, and ask for this to be documented.

What happens if you stop paying on a buy here, pay here car?

When you stop making payments on a buy here, pay here car, the dealership may take action to repossess the vehicle. It could result in a ding to your credit score, too.

Other ways to get a good deal on financing a vehicle

There are lots of great ways to finance the purchase of a vehicle. Don’t limit yourself to what the dealership is offering, as it may not be the best possible deal.
Here are some alternatives that could work better for your lifestyle (and your wallet).

Pay the full amount in cash for a pre-owned car

If you save up the full amount, then there’s no need to submit to a credit check or apply for financing.
Used cars (even five or 10 years old) can be far cheaper than new cars. It’s very possible to pay the full amount out of pocket if you have the discipline to save.
If dealerships are too expensive for your budget, try looking for a private seller. This strategy is a more risky, especially if you’re not very car-savvy. But if you are committed to doing your research and paying for a mechanic to evaluate the vehicle, it could be a great way to save money.
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Save up a bigger down payment

A larger down payment can help you negotiate for a lower interest rate with the dealership. If possible, try to save up a chunk of cash before you start shopping to put yourself in a stronger position.

Ask someone to co-sign

If you don’t have strong enough credit yourself to qualify for a low-interest rate, ask someone you trust to co-sign. Your co-signer should have a great credit score and stable employment.
This strategy can open the door to pricier vehicles and better interest rates. Just be aware that if you default on the loan, your co-signer will be on the hook for payments and it could impact both of your credit scores.
Key Takeaway Remember, if your loan is cosigned, any default or delay in making your payments affects both your credit and your guarantor’s credit.

Wait until your credit score improves

If you can wait a few months, then you can try to improve your credit score before applying for a loan.
By making regular payments, addressing issues with your record, or being added as an authorized user to an account belonging to someone with great credit, you can boost your score. A higher credit score will qualify you for a better interest rate, which could save you a ton of money.

Shop around to find a better financing deal

Don’t accept the first deal you’re offered—there’s almost always a better option.
You can compare car insurance quotes online and explore options with your financial institution. Online auto lenders like Jerry may be the quickest and easiest way to scope out your options.
If you have poor credit, then look for a lender that specializes in making loans for high-risk borrowers. The interest rate could be higher than your bank’s, but they may be able to offer other benefits like waiving a down payment or slowly reducing your interest rate over time.
To know if the loan terms will work for you, consider the length of the loan, the amount of the monthly payment (and other fees), and the interest rate.
Make sure to confirm if the lender will report your payments to a credit bureau, which can help you improve your credit score.

What now?

Buy here, pay here is popular among people with poor credit. However, it’s not your only—or best—option for financing a car.
To find the best deal, shop around and get preapproval from multiple lenders. Check your credit score beforehand to help you negotiate confidently and be prepared to bargain.
You deserve an affordable financing deal, so taking the time to do your research will put you in the best spot to secure a deal that works for you.
You’ll also want to find an affordable car insurance policy to go with your financing plan. Start your search with Jerry and take the long forms, phone calls and hassles out of car insurance shopping!
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