Posted Thursday, May 23, 2024
Securing car financing with bad credit can feel like a real struggle, however, many car dealerships make this journey hassle-free by offering in-house auto financing called Buy Here, Pay Here (BHPH). These dealerships handle the entire car buying process within their own facility, making everything easier and quicker. Despite the good many BHPH dealerships are doing for bad-credit car buyers, there are various misconceptions that not only hurt these dealers' image but also deter potential buyers from considering them as a viable car financing option.
Here’s what you should know about BHPH financing as you begin your car-buying journey, along with the most common myths about BHPH dealerships.
Buy here, pay here (BHPH) financing is a car financing method where a dealership provides loans to customers in-house. BHPH is often used by dealerships that sell used cars and cater to people with poor or no credit history.
A Buy Here, Pay Here dealership allows customers with less than perfect credit to purchase a car by direct financing through the dealership. That means buyers make payments directly to the dealer, often with a down payment. Due to the higher risk involved, some BHPH dealers may install tracking devices on the car and even devices that can disable the engine if payments are missed, allowing them to easily repossess the vehicle if the loan isn't repaid on time.
While many BHPH used car dealerships are truly helping car buyers with bad credit, some outdated Buy Here, Pay Here horror stories have led to many myths around the whole BHPH industry. Here are the most common misconceptions about BHPH dealerships that you shouldn’t believe:
This statement is not true because while their rates are often higher than traditional lenders, not all BHPH dealerships charge exorbitant rates. A BHPH used car dealership primarily charges higher interest rates because they take on a greater risk by financing customers with bad credit directly and need to charge higher rates to offset potential losses from defaults.
Also, the specific interest rate of a BHPH dealership can vary depending on the dealer and the borrower's situation. It is important to compare interest rates and loan terms across different dealerships to choose the most suitable deal for your situation.
It is untrue that Buy Here, Pay Here dealerships require high credit scores; in fact, they specialize in selling cars to people with poor or no credit history. BHPH dealerships are a good option for those who cannot qualify for traditional financing at other dealerships because of having a less-than-perfect credit score.
BHPH dealerships use different methods to assess a buyer's credibility compared to traditional lenders who might refuse to finance due to poor credit scores. These dealerships often prioritize factors like employment stability, down payment size, and proof of residency to confirm the customer's ability to make consistent payments instead of pulling a credit report.
The statement “BHPH dealerships require large down payments” is not entirely accurate. While some BHPH dealerships may ask for larger down payments than traditional dealerships due to the higher risk associated with financing customers with poor credit, not all do. In fact, many BHPH dealerships work with buyers to find a car that fits their budget, including smaller down payments. Some BHPH dealerships have a wide selection of used cars, enabling them to offer suitable vehicles to accommodate individuals with varying credit histories and financial capabilities.
This statement is untrue for most Buy Here, Pay Here dealerships today. BHPH dealerships are increasingly providing warranties or extended service contracts on their used-cars inventories. The high competition in the used vehicle market is pushing the BHPH dealerships to offer more protection to customers by providing some mechanical coverage with their vehicles, often at a more affordable price compared to traditional dealerships.
Maintaining a good customer is often more beneficial for BHPH dealerships than quickly repossessing the vehicle. That is why most Buy Here Pay Here (BHPH) dealerships will try to work with customers if their car breaks down, aiming to get it repaired and keep them making payments on the vehicle.
Immediate repossession of vehicles by BHPH dealerships for late payments is not completely true. While it is true that BHPH dealerships can repossess vehicles more quickly than traditional lenders due to their contracts, they typically try to work with customers before resorting to immediate repossession. Moreover, not every late payment automatically results in immediate repossession.
As mentioned earlier, it is significantly more cost-effective for a BHPH dealership to work with a customer experiencing payment difficulties and try to retain them, rather than immediately repossessing the car and finding a new buyer. This is because acquiring new customers is considerably more expensive than maintaining existing ones, especially when dealing with high-risk borrowers typical of BHPH dealerships.
This statement doesn’t hold for all BHPH dealerships. While BHPH dealerships may prioritize their own profits, some reputable BHPH dealerships do work to help customers with bad credit access vehicles, even if it means higher interest rates and stricter terms. By doing so, these reliable dealerships benefit certain consumers who have limited options.
It is strongly recommended to thoroughly research and carefully review the contract before buying from a BHPH dealership. This will help you understand your obligations and the potential risks associated with the purchase, including high interest rates and strict repayment terms.
Not all BHPH dealerships practice churning (repossessing cars quickly and reselling them numerous times). It is simply not realistic for most dealerships to sell the same car five times within a year, and even the most aggressive BHPH dealers would struggle to achieve such a high turnover rate on a single vehicle.
Most Buy Here Pay Here used car dealerships prefer working with a customer to pay the loan rather than repossessing vehicles frequently. Because repeatedly reselling the same car would severely damage their reputation and make it difficult to attract new customers. Most importantly, selling a single used car multiple times within a short period is highly unlikely as most customers prefer relatively new vehicles with a good history.
The statement that the BHPH auto industry is not regulated is untrue because the BHPH auto industry is regulated by state and federal laws. BHPH dealers must follow many laws and regulations, including the Truth in Lending Act, the Fair Debt Collections Practices Act, and the Fair & Accurate Credit Transaction Act.
Securing car financing is difficult, especially if you have bad credit. If you’ve been turned down for a car loan by traditional lenders, Honest Autos has seamless in-house auto financing options that may help you.
At Honest Autos, we are determined to help you get into a quality used car without worrying about your credit score. Get in touch to explore our extensive inventory and BHPH financing.