Car Buyer Labs

Car Buying Advice, Tips, and Reviews

A salesman and a customer are shown shaking hands at a dealer that handles buy here pay here near me.

How to Finance a Car, Even With Bad Credit

The automotive industry is constantly shifting, always evolving to meet the needs of drivers and keep up with the pace of technology. For ages, having a less-than-notable credit score disqualified shoppers from getting good deals on cars or getting cars at all. But in today’s age of instant everything, there are ways to secure an auto loan, even for those who have poor credit or no credit at all.

If you haven’t heard of Buy Here, Pay Here (sometimes abbreviated BHPH), you may be unfamiliar with how it works. A dealership that offers a BHPH program has an in-house auto lender that is less strict when qualifying buyers, opening the door to providing auto loans to the credit-challenged. Not every dealership offers this service, so it’s key to search for “Buy Here, Pay Here near me” specifically before starting the process. For individuals looking to build credit or help repair credit, the dealerships that can finance internally provide a great opportunity, but before you go this route, it’s important to weigh the pros and cons.

The Pros of BHPH

If your credit isn’t in great shape, or you haven’t had a chance to establish credit yet, you may have a difficult time securing a car loan through a traditional lender. When you shop at a BHPH dealership, you’re far more likely to get approved for a car loan regardless of your credit situation. BHPH dealerships have lower standards for approval in an effort to make car loans more accessible to a broader range of customers. This creates a valuable opportunity for those customers to be able to still get a vehicle without having to cough up copious amounts of cash.

BHPH dealerships make the process simple. You choose the vehicle you’re purchasing from a BHPH dealership’s inventory, then they proceed to finance you before you drive off the lot. Whereas a dealership using traditional outside lenders could take hours, only to regret applicants with poor credit. Using a BHPH dealer could ultimately save you time because everything is streamlined in one location. Plus, doing everything in one place helps preserve the privacy of your personal information.

A line of cars are shown at a dealership.

The Cons of BHPH

There are a few downsides to using a BHPH dealer. To offset the risk to the dealer, they tend to charge higher rates than traditional lenders who stay within range of the same industry rates. Since these in-house loans are better for borrowers with little or no credit, those with average or high credit scores shouldn’t go this route. Depending on the dealership, the rate may reach the maximum rate permissible in your state. Be careful when reading your contract; shady dealers might add hidden fees and drive up your overall costs.

Another possible con of BHPH is that it can limit which vehicles you’re eligible to buy. Many BHPH dealers will start by determining your exact eligibility before presenting you with inventory for which you qualify. This may eliminate certain models based on price, while a traditional lender could mean more options.

Finally, you’re likely to still need to foot the bill for a large down payment. While this is better than having to purchase a vehicle entirely with cash, it still means you’ll have to come to the table with a lump sum even before financing. Dealers do this to mitigate the risk they take when lending to applicants who carry bad or little credit. If you can’t match a certain down payment, you may be disqualified for certain cars.

What Else Happens?

The BHPH model may not be right for everyone. However, it’s an excellent alternative to not being able to finance a car at all. Not every area is equipped with reliable public transportation, and consumers still deserve a chance at car ownership despite less-than-perfect credit. If you fall into this category, you’ll want to consider how else a BHPH program will affect you.

It may not be well known that lenders acquire costs when reporting loan applications to the three main credit reporting bureaus (Experian, TransUnion, and Equifax.) Some dealers who do BHPH loans may not report them to the lending bureaus. This is a small perk of BHPH loans since hard inquiries from lenders can negatively impact a score by as much as five points. In a worst-case scenario, if the vehicle you’ve financed gets repossessed, this won’t show up on your credit report either.

On the flip side, a BHPH loan might not positively affect your score, either. Since dealers might not report to the credit bureaus, they also won’t report your on-time payment history that will help build or rebuild your credit. Check with your dealer for details, so you will know how a Buy Here, Pay Here loan is going to affect your credit (or not affect it).

If you make all of your payments on time and in full, you’ll be in great shape. However, BHPH tend to have a higher likelihood of ending in repossession (and less wiggle room before that happens). Traditional dealerships and BHPH dealerships have the authority to repossess your vehicle if you stop paying for it. This is no different than a bank foreclosing on a home with an unpaid mortgage. If you stop making payments, the dealer will come to retrieve your vehicle in order to satisfy the outstanding loan and recoup their losses. While this is a normal practice among dealerships, it’s often more common in a BHPH program because of the higher payments required and the lower tolerance for missed ones.

How Can I Improve My Credit?

Before you resort to using a BHPH dealer, be aware that there are short-term and long-term strategies to improve your existing credit score. There are plenty of tools available to look up your score and the details that make up that calculation. If there are any immediate issues, such as bills that have been sent to collections, you can quickly improve your score by settling those debts. Payments made towards reportable debt can show up as quickly as one or two months. Another option is to have someone with good credit add you as an authorized user on one of their accounts. That account holder’s strong payment history will positively impact any credit line that your name is also linked to.

Keys are shown exchanging hands at a car dealership.

Explore Your Options

Using a BHPH dealer has its high points as well as its drawbacks. These dealers qualify more buyers than traditional lenders, making car ownership more accessible. You may not land the car of your dreams, but it will help you land a car when other lenders say no. If you’re okay with paying higher rates in exchange for approval, the BHPH route can get you where you need to go. It will ultimately depend on your individual circumstance, which option is right for you.

Get familiar with your credit history. Even with poor credit, you may still qualify for a traditional loan from a wider range of dealerships. There are alternatives like getting a co-signer, using a credit union, or going through a financier who provides second-chance auto loans specifically aimed at consumers working towards improving their scores.

While going through a BHPH dealer presents some challenges, it can be a great option for someone who doesn’t qualify for a traditional loan. Applicants who are in a hurry may not have time to wait around while they improve their credit scores the old-fashioned way. Going through a BHPH dealer gives people an opportunity to still get behind the wheel of a car while working towards financial goals for the future. Ultimately, it will depend on you to seek the financing that best suits your needs.