Buy Here Pay Here Car Dealers - What You Need to Know

Buy Here Pay Here Car Dealers - What You Need to Know

Buying a pre-owned vehicle is a great way to save money on a quality ride, but it’s not always possible for buyers to qualify for a traditional auto loan. Beyond credit scores, lenders want to see steady employment and a history of making on-time payments, which can make it difficult for some people to be approved. While there are mainstream car dealers that offer to finance bad credit borrowers, the process is often embarrassing, time-consuming, and can end in denial, even after all the hassle.

The good news is that buy here, pay here dealerships exist. They sidestep the traditional credit application, approval, and borrowing processes in favor of in-house financing and no hard credit check. You’ll still need a job and a way to prove that income, and you may pay more for the loan over time, but Buy Here Pay Here lots can help those who wouldn’t have options elsewhere.

That is an option for some car buyers, but the picture isn’t all sunshine and roses. There are significant risks and downsides with buy here pay here lots, just like any other car-buying avenue, so it’s essential to take the time to understand the pros and cons. Here’s a quick overview to help you get started down the right path.

What are Buy Here Pay Here Dealerships?

Some people find it’s not easy to qualify for a traditional car loan through a bank, a credit union, or another lender. That situation sometimes extends to those who think their credit is decent, as changing economic and credit conditions have made many lenders more cautious about issuing loans than in the past. Combine that with expensive new car prices and higher interest rates, and it’s a formula that can push many car buyers out of the market.

Buy here, pay here car dealers help buyers get around some of the difficulties that come with having a spotty credit history by offering their in-house financing and less restrictive lending terms. Many dealers in the space provide car loans without a credit check, requiring only proof of income, proof of employment, and a down payment.

The process is typically easier than applying for a traditional loan, as the dealer isn’t sending the credit application to a third party for processing after it reaches the credit bureaus. That said, there are often risks associated with buy here pay here dealerships.

Traditional lenders are bound by government policy and other rules that limit the amount of interest they can charge and the terms they offer. Buy Here Pay Here Lots often charge higher interest rates because their customers’ credit scores put them at a higher risk of defaulting on the loan. Buyers also generally see a smaller selection of vehicles.

Dealers want low-cost cars, SUVs, and trucks to sell, limiting the types and volumes of vehicles they can acquire for sale. They may also require a significant down payment, and some buyers find the dealer placed a GPS tracker on the car to help recover it if they stop paying the loan.

Buy Here Pay Here lots aren’t all bad, though. Many people find the car buying process to be much smoother and faster without the need for third-party credit approval. Buyers with bad credit can also avoid the embarrassment and hassle of trying to get approved for a loan with one of the dealer’s preferred lenders.

How To Prepare Before Buying a Used Car

One of the best things you can do before starting any car purchase is to carefully review your credit history and ensure that all the information contained within it is correct. If you notice an error that could be impacting your credit score, contact one of the three major credit bureaus with proof, and your issue should be corrected quickly.

You may find that your credit is good enough to pursue a traditional loan with a bank or credit union, rather than relying on a Buy Here Pay Here lot. Still, it’s important to know your credit background before starting the shopping process.

It’s also a good idea to shop around, even if you’re limited to dealers with in-house financing. While the vehicle selection is usually limited at those dealers, shopping around will allow you to compare prices, loan terms, and reviews for your selected store. Read customer complaints and note any consistent themes, such as difficult customer service, uncertain loan terms, or vehicle issues after the sale.

You should be aware of your trade-in value, if you have one, before heading to the used car lot. Check online valuation tools and make sure you understand the vehicle’s condition and any pre-existing conditions that could slow the car-buying experience. Read the paperwork before driving off in your new-to-you used vehicle to make sure you received the promised trade-in value and that all the numbers align with your expectations.

Finally, a pre-purchase inspection is a solid idea, no matter where you buy your car. Take the vehicle to a trusted, independent shop, have a mechanic check it for existing issues and note any problems that could arise in the future.

Yes, this is an additional cost, but spending a few hundred dollars on a pre-purchase inspection upfront can save you thousands of dollars on an unexpected repair later. Worse, your car could leave you stranded on the side of the road.

Understanding Bad Credit and Car Loans

For better or worse, credit scores play a significant role in every American adult’s finances, including loans. Lenders view people with low credit scores as riskier, leading them to charge higher interest rates, limit the length and types of loans offered, or deny the loan altogether. It’s often possible for bad-credit borrowers to be approved for a loan at a traditional dealership, but the application and approval processes can take a while, and it can feel humiliating to sit through an extended loan application only to be denied for poor credit.

If you have bad credit and don’t need a car right away, taking the time to work on your credit by paying off outstanding debts, reducing your debt-to-income ratio, and letting negative marks drop off your credit report can significantly boost your chances of being approved. You’ll likely find a lower interest rate and more favorable loan terms. This approach is almost always more responsible than pursuing a buy here, pay here vehicle because of the fees and costs that often come with them.

Of course, waiting isn't always an option, and sometimes you just need a car right away. If you find yourself in that situation and can’t take the time to upgrade your credit score, proceed carefully through the buy here pay here process, making sure you understand the terms and conditions and that you’re comfortable with any fees you may incur along the way.

Buy Here Pay Here, and Credit Reporting

Many in-house financing operations state that they will report on-time payments to the major credit bureaus, which can boost the borrower’s score over time. While some do, it’s not a given that it will happen, so it’s essential to understand what does and does not happen throughout the loan process. Some dealers only report negative marks, such as late payments and repossessions, which are not helpful for your credit score.

Conversely, buy here pay here financing typically doesn’t cause the initial credit score drop that traditional lenders do. That’s because applying for a conventional loan requires a credit check, also known as a hard credit inquiry, which can dent credit scores. While it’s a small credit ding, multiple hard inquiries add up and can lower your credit score enough that you won’t be approved the next time you apply at a car dealership.

Other Car Buying Options

Buy here, pay here lots are a great option for people without many alternatives, but they aren’t the only solution for those with poor credit. Private cash sales are a great way to get a used car at a reasonable price, but you should still get a pre-purchase inspection and you’ll have to have the cash saved up before buying.

That said, if you can manage the cash payment, you’ll have a vehicle you own outright and you won't have to make car payments over time. You can also talk to family members and friends to determine if anyone is selling a vehicle that could be a good deal. You’ll still have to pay cash, but you’ll likely get a solid price.

What to Know Before Getting An Auto Loan

Buying a new or a used car is an exciting time, and it’s easy to get caught up in the process without thinking about the details. Even if you qualify for a traditional auto loan, keep in mind that buying a car on credit increases your debt and obligates you to make monthly payments for the life of the loan contract. Remember that the upfront purchase price is just one of several expenses that come with car buying, which can include insurance, repairs, taxes, registration fees, and more.

Suppose you’re unsure whether you can afford long-term car loan payments or have doubts about the vehicle’s long-term reliability and functionality. In that case, it’s a good idea to slow down and run the numbers, to make sure you aren’t biting off more than you can chew. You may start the car buying process with good credit, but failing to make payments on time is a great way to tank your credit score in a real hurry.