Buy Here Pay Here: What Is It?

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If you’ve been shopping for a car recently, 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 themselves, as opposed to having you go through an outside lender. This is sometimes called in-house financing.

Many used car dealers use third-party financing companies to provide loans to their customers when they buy a car. The financing company handles the process of qualifying the customer, writing the loan, processing the payments, and, if necessary, they handle the collections process if the customer defaults on the loan. The dealership gets a cut of the interest in exchange for sending the lender the business.

Some dealerships choose to take on the financing themselves, rather than having a finance company handle it. These are the BHPH dealers, and they often specialize in serving customers who may have poor — or no — credit or no down payment. This is riskier for the dealership, so they often charge a higher interest rate than other financing sources.

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What’s the Best Way to Finance a Car?

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

  1. You can get an auto loan from your bank. First, complete the loan application and wait for approval. Once approved, the bank can give you a check to take to the dealer which 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 a lienholder on the title until you’ve paid off 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 handle the paperwork, and you will make your loan payments to them.

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

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If you have excellent credit and a down payment, a bank will typically offer the best interest rate outside of a promotion at a dealership. Check with your bank to see what they offer and what you qualify for. Then compare it to what the dealer is offering.

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

Whichever option you choose to finance your vehicle, keep in mind two things. First, make sure that you can make the payments on time, even if your financial situation changes. Some BHPH dealers offer weekly payments rather than monthly ones, which may make it easier to keep up. Secondly, shop around for the best interest rate you can get for the car you want. If you are in the market for a used car, don’t let the financing offers of new car dealers sway you. And don’t buy a more expensive car than you want or need just because the financing is good.

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FAQ

  • What are the cons of Buy Here, Pay Here?
    • Since a BHPH car dealer typically does not check your credit or require a big, if any, down payment, they usually charge a higher interest rate than what you would get from a bank or a finance company. In addition, some BHPH dealers don't report your on-time payments to the credit bureaus, so financing a car through a BHPH dealer may not help you improve your credit score.
  • How can I get a car with no money or credit?
    • A Buy Here, Pay Here dealership will often provide financing with no money down and no credit checks. This is risky for the dealer, however, so they will try to mitigate that risk by charging a higher interest rate. If you decide to go through a BHPH dealer, make sure you choose a car you will be able to afford to make the payments on.
  • Does a Buy Here, Pay Here go on your credit?
    • Many BHPH dealers do not do a credit check in order to approve your loan. They will usually check your income, to make sure that you make enough money to be able to make the payments, but they're less concerned with whether you've made on-time payments in the past. Some BHPH dealers don't report your on-time payments either, so keep that in mind if you're trying to build your credit.

Information is accurate as of June 4, 2022.

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About the Author

Karen Doyle is a personal finance writer with over 20 years’ experience writing about investments, money management and financial planning. Her 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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