What are Buy Here Pay Here Auto Loans?
Many people take out auto loans if their available cash is not enough for a car purchase. However, for lenders that are financial institutions such as banks, there is a chance that they will check your credit report. This may leave you worried if you have poor credit.
The good news is that there are now buy here, pay here or BHPH auto loans. Through these loans, buyers who have no credit or have bad credit can secure from the dealership an in-house financing. However, it is important to remember that this kind of auto financing comes at a rather high cost, possibly higher than the actual worth of the car itself. Your interest rates will be higher and there might even be a need for you to give your consent to being tracked.
How Does Buy Here, Pay Here Auto Loans Work?
Buy here, pay here financing is a form of an auto loan that is almost always meant for pre-owned cars. The auto dealership provides this auto loan directly. It is different from when the dealership offers you a loan from their partnered financial institution such as a local credit union. There, the dealership is only the middleman between the credit union and you to save you the trip there. However, the dealership will likely charge you with a fee for processing the loan.
On the other hand, a buy here, pay here loan is the very own form of in-house financing of the car dealership. The moment you apply for a buy here, pay here auto loan, your lienholder is the dealership. They will set your rates as well as the schedule of your payments, the most common being biweekly or weekly payments.
Terms for most terms mainly depend on your credit score. Your interest rate will be better if you also have a better credit score. This often means that your down payment can also be smaller. However, with buy here, pay here loans, you don’t really need to worry about a credit check. It makes these loans particularly enticing for people with bad credit. However, this also means that the auto dealer that acts as the lender here will set very high interest rates.
Down payments may vary for cars with BHPH loans. They may charge very small or large to lure customers. While the Federal Reserve regulates standard lenders as to the amount they will allow you to borrow, this is not the case with used car dealerships and lots. They might finance the vehicle for more than its worth, particularly a pre-owned one. BHPH lots benefit from repossession. They will retrieve your vehicle when payments are late and place it back on the lot to offer to buyers with low credit.
BHPH Comes with Pros and Cons
It is much faster to secure financing through buy here, pay here auto loans compared to the traditional loan process. This is because the dealership basically decides right on the spot. As expected, the main advantage of buy here, pay here auto loans is that it gets you the financing you need for your vehicle that you might not be able to get somewhere else because of your low credit score. However, the high cost is its biggest downside.