Buy here, pay here: what is it?

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If you’ve recently purchased a car, or even just driven by a few used car lots, you’ve probably seen signs advertising, “Buy here, pay here.” But what exactly does that mean, and is it a good deal for the car buyer?

What “Buy here, pay here” means

The term “Buy Here, Pay Here” (BHPH) simply means that the dealer you are buying the car from is financing the sale itself, rather than having you go through an outside lender. This is sometimes called internal financing.

Many used car dealerships use third-party finance companies to provide loans to their customers when they buy a car. The finance company manages the process of qualifying the customer, writing the loan, processing payments and, if necessary, it manages the collection process if the customer defaults on the loan. The concessionaire gets an interest reduction in exchange for sending the business to the lender.

Some dealerships choose to take care of the financing themselves, rather than outsourcing the management to a finance company. These are the BHPH resellers, and they often specialize in serving customers who may have low – or no – credit or no down payment. It’s riskier for the dealership, so they often charge a higher interest rate than other financing sources.

What’s the best way to finance a car?

There are three ways to finance the purchase of a car.

  1. You can take out a car loan from your bank. First, complete the loan application and wait for approval. Once approved, the bank can give you a check to give to the dealership that you can use to purchase the car. You then make your payments to the bank until the loan is paid off. The bank will be named as the lien holder on the title until you have repaid the loan.
  2. You can finance through the dealership using a third-party finance company. Most new car dealerships and many used car dealerships offer this option.
  3. You can go to a BHPH dealership and finance there. They will take care of the paperwork and you will pay them your loan repayments.

The best way for you to finance a car will depend on several factors, including the car you intend to buy and your personal financial situation. Sometimes new car dealerships offer financing deals, such as 0% interest for a fixed number of months. To get this offer, you’ll need near-perfect credit, extra income above your basic expenses, and a down payment. You must also be willing and able to purchase a new car, as these offers are not offered on used vehicles.

If you have excellent credit and a down payment, a bank will usually offer the best interest rate outside of a promotion at a dealership. Check with your bank to see what they offer and what you are entitled to. Then compare it to what the dealer offers.

If your credit score is below average or you don’t have a down payment, a BHPH dealer may be your best option. You’ll probably pay a higher interest rate than someone with perfect credit would pay at a bank or through a dealer finance company, but BHPH dealers often lend to those who aren’t eligible for other options.

Whichever option you choose to finance your vehicle, keep two things in mind. First, make sure you can make payments on time, even if your financial situation changes. Some BHPH resellers offer weekly rather than monthly payments, which can make tracking easier. Second, shop around for the best interest rate you can get for the car you want. If you’re looking for a used car, don’t be swayed by financing offers from new car dealerships. And don’t buy a more expensive car than you want or need just because the financing is good.

FAQs

  • What are the disadvantages of buying here, paying here?
    • Since a BHPH car dealer usually does not check your credit or require a large down payment, if any, they usually charge a higher interest rate than you would get from a bank or finance company. Also, some BHPH dealerships do not report your on-time payments to the credit bureaus, so financing a car through a BHPH dealership may not help improve your credit score.
  • How can I get a car with no money or credit?
    • A Buy Here, Pay Here dealership often offers financing with no down payment or credit check. This is risky for the dealer, however, he will try to mitigate this risk by charging a higher interest rate. If you decide to go through a BHPH dealership, make sure you choose a car that you can afford to make the payments on.
  • Does a Buy Here, Pay Here go on your credit?
    • Many BHPH dealerships do not do a credit check to approve your loan. They’ll usually check your income to make sure you’re making enough money to make payments, but they care less about whether you’ve made payments on time in the past. Some BHPH dealerships also don’t report your payments on time, so keep that in mind if you’re trying to build your credit.

Information is accurate as of June 4, 2022.

Our in-house research team and on-site financial experts work together to create accurate, unbiased and up-to-date content. We verify every statistic, quote and fact using trusted primary resources to ensure that the information we provide is correct. You can read more about GOBankingRates processes and standards in our Editorial Policy.

About the Author

Karen Doyle is a personal finance writer with over 20 years of experience writing about investing, money management, and financial planning. His work has appeared on numerous news and finance websites, including GOBankingRates, Yahoo! Finance, MSN, USA Today, CNBC, Equifax.com, and more.

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