If you’ve exhausted every possibility for auto financing without success, a Buy Here Pay Here (BHPH) dealer may be your last and best resort.
It’s sad to say, but most Americans simply do not have the cash to buy a car without a loan. Typically, to purchase a car consumers borrow money through third-party lenders, such as banks, credit unions and carmaker-associated lending companies. Yet, for a variety of reasons, usually credit, traditional lenders can not approve everyone. If you are in that situation, try a BHPH dealer.
What is a Buy Here Pay Here dealer?
BHPH means that the dealership where you purchased the car is also your auto lender. Because your loan decision is made by the BHPH dealer, who wants to sell you a car, approval is nearly always guaranteed, regardless of your credit score, as long as you have an address and a steady income.
Offering credit to a person with a low FICO score isn’t done out of the goodness of the BHPH dealer’s heart. Bad credit loans are given to make money, lots of money. BHPH dealers rarely discount their vehicles because BHPH buyers have few other options to purchase transportation. Especially since the majority of BHPH buyers have already been denied credit at traditional dealers.
BHPH dealers recognize that their best customers have limited funds or have trouble managing the cash they have. Accordingly, in an attempt to make automobile loan payments more affordable, many BHPH dealers accept weekly and bi-weekly payments rather than the standard monthly payment. The idea behind the weekly payment is for the buyer stop at the dealership on the way home from work every pay day to make his car payment before he spends his money elsewhere. It helps the consumer manage his money and ensures that the BHPH dealer gets paid.
Buy Here Pay Here cars are expensive
Because of that, BHPH cars are almost always priced well over Blue Book value, and are therefore, even more profitable than used cars purchased at traditional dealers. That said, BHPH vehicles tend to be more reliable than most used cars. BHPH dealers know that their customers are not afraid to walk away from a “mechanically challenged” car. Why not? What does the BHPH customer have to lose if he walks away from the loan? His credit is already bad
You need to know that the BHPH dealer probably makes as much, if not more profit from financing the vehicle than they do on the over-priced car itself. A high-risk borrower can expect double-digit interest rates in a single digit marketplace. Large down payments, compared to traditional dealerships, are usually required. The amount of the down payment is typically the amount the dealer paid for the car at auction. Accordingly, BHPH dealers rarely lose money, even when a customer defaults on a loan. The BHPH dealer simply repossess the vehicle, fixes it and starts the BHPH process all over again.
Buy Here Pay Here Lock Out Devices
When shopping at a BHPH dealership, always ask if a lock out device is installed in the vehicle. A lock out is a radio or cellular device that will not permit the car to start if you do not made your weekly or bi-weekly car payment. The lock out device also provides the dealer with the exact location of the automobile so that the BHPH dealer can send a tow truck to repossess your car. That mean no more hiding your car from the Repo Man. Technology lets the BHPH dealer know exactly where it is parked
When you car shop at the BHPH dealer, ask questions. Find out about the BHPH dealer’s late payment policy. Ask if there is a grace period, and if so, how long is it? Will they provide an emergency code to bypass the lock out long enough for you to drive to the BHPH dealer so you can make a cash payment? Before you sign the contract, be sure that it clearly spells out how long the period is between missing the weekly payments and repossession.
Finally, be sure that the BHPH dealer you use reports your payment status to the major credit bureaus. Get this in writing. BHPH dealers make lots of money from your credit distress. You should use them to rebuild your credit so that your next car purchase can be through a traditional, more affordable dealer.
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