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  • Nicholas Hinrichsen

Buy Here Pay Here Financing

Buying a new or used car is a significant, yet usually necessary, financial decision for many Americans. Over the past couple of decades, car prices have increased, placing more burden on consumers who need to get around. When people buy cars at traditional dealerships, they usually pay with cash or through an auto loan provided by a dealership, bank, or credit union. For those who have poor credit or no credit, this poses some challenges and limits your options. Many people go through car dealers called buy here pay here car dealerships, which act as the seller and lender by providing in-house financing to customers. In this article, we will be answering the following questions:



What are buy here pay here dealerships?


Buy here pay here dealerships offer car-buying solutions to individuals who have a bad credit history or cannot qualify for an auto loan. Often, buy here pay here dealerships will advertise their auto loans as "no credit check" or "no credit, no problem" auto loans, appealing to consumers with low credit scores (generally a FICO score of 600 or below). When you use a buy here pay here dealership, the dealership acts as the lender by providing in-house financing to customers. The dealership will verify your proof of income and address and then show you a selection of cars within your price limit.

Buy here pay here dealerships can be a lifesaver depending on the customer's credit situation. For those who require a car but are either tight on cash or have bad credit scores. Buy here pay here dealerships might seem like a great way to overcome financial barriers to get a car, but there are significant risks associated with choosing to go down the buy here pay here route.

What are the pros and cons of buy here pay here dealerships?

The pros of using buy here pay here car lots are:

  • No credit checks: This is advantageous for those with no and low credit scores.

  • May help with your credit: If the dealership is legitimate, they will report your payments to a credit reporting agency, which will help your credit score if you make payments on time.

  • Getting a car is easy: Since the purchase and financing are made simultaneously, it makes getting a car quick and easy.

  • No or little money down: Many buy here pay here dealerships offer no the option to buy a car with no money down, or down payments as little as $500.


What are the cons of buy here pay here dealerships?


The cons of using buy here pay here car lots are:

  • Higher interest rates: The average interest rates of buy here pay here dealerships are around 20%, which is much higher than rates offered by traditional banks and credit unions. The average interest rate from banks is 5.31% and from credit unions is 3.44%.

  • Payment options: Many buy here pay here dealerships have inconvenient payment option plans forcing borrowers to pay weekly, and some even require customers to pay in person.

  • Car tracking devices: Since there is a high rate of defaulting on loans, most dealerships will install tracking devices in the cars for repossessions.

  • Does not always help your credit score: Many loans offered by buy here pay here dealerships are not reported on your credit report and therefore will not help your credit score.

Will going to a buy here pay here dealership impact my credit score?


The answer to this question varies on the dealership and the customer's ability to make monthly payments. Some buy here pay here dealerships do not report payments to the major consumer credit bureaus, so if you are making payments on time, it will not benefit your credit score, but also, if you fail to make payments on time, it will not be reported to any major credit bureaus. If the buy here pay here dealerships report the buyer's payment history to credit bureaus, your payment activity will impact your score. This can be beneficial for those who previously had a bad credit score and make their payments on time to improve their credit.



What the alternatives to buy here pay here dealerships?

If you have only been considering shopping for your next car from buy here pay here dealers, you can explore some other auto financing options first.


Before purchasing a car from a buy here pay here dealership, the first step you should take is to check your credit history. After you get your credit score, start shopping around by comparing loan rates at different banks and credit unions.


Buy a used car with cash. If you do not qualify to finance a newer car currently, it might be in your best interest to improve your credit score. In the meantime, you can save and buy a used vehicle with cash. After you have a good credit score and qualify for a loan, you can use your used car as a down payment to finance a newer car.


If your credit score is holding you back from financing a new car, you can always ask a close friend or family member to co-sign the car loan. While the co-signer will be taking on considerable risk if you fail to make payments, this can be another great way to help improve your credit score.

Bottom line


Ultimately, buy here pay here dealerships come with a considerable number of risks. Individuals looking to purchase a car should exhaust all other options before considering to purchase a car from one of these dealerships. Before purchasing a car from a buy here pay here dealership, make sure you know the car's true value by checking with sources such as NADA, Edmunds, or Kelley Blue Book. Most importantly, make sure you understand the payments and can make the payments on time.


Refinancing with WithClutch


More often than not, individuals are overpaying on their auto loans -- especially if you purchased a vehicle from a dealership. WithClutch can help you save money and time by allowing you to refinance your loan from the comfort of your home! Use the free Auto Loan Refinance Calculator to find out how much you could save.

If this is something that appeals to you, follow these simple steps to begin your refinance journey and get you on the best payment plan to finally be free of your auto loan.


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