What is a Buy Here, Pay Here Dealership?

These dealerships offer easier access to financing for credit-challenged car buyers, but the potential drawbacks may cause you to think twice.

Ben Luthi | 

May 4, 2022 | 6 min read

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With traditional car buying, buyers can obtain an auto loan directly from a lender or through dealer-arranged financing. In both instances, though, you're working with a bank, credit union, or other lending institution.

A buy here, pay here (BHPH) dealership works a bit differently and can be especially helpful for buyers looking to secure a loan without credit history or with a poor credit score.

While buy here, pay here dealerships can make buying a car more accessible, there are some potential drawbacks to consider before buying a car this way. So, what is a buy here, pay here dealership and how should you decide if it's right for you? Here's what to know.

What is Buy Here, Pay Here and How Does it Work?

A buy here, pay here dealership is a specialized car dealership for buyers who may have a challenging time securing financing to purchase a vehicle. With a buy here, pay here dealership, you'll receive in-house financing from the dealership itself. These dealerships specialize in working with car buyers who may not be able to qualify for traditional auto financing. As such, it's common to see them advertise with signs like "bad credit, no credit, no problem."

When you buy a car with a BHPH dealer, you typically won't undergo a credit check like you would with a traditional auto lender. You do, however, need to prove that you can afford the monthly payments on the loan. As long as you have the necessary paperwork, you can complete the car-buying experience relatively quickly.

Because there's no credit check, BHPH dealers also typically don't report your monthly payments to the national credit bureaus. However, if you miss a payment, the dealership may report it.

Compared to traditional auto loans, loans offered by BHPH dealers may have higher interest rates, which can make it more challenging to keep up with your payments. If you don't pay on time, you could risk having your vehicle repossessed.

Pros and Cons of Buy Here, Pay Here Dealerships

BHPH dealerships can provide both advantages and disadvantages to a specific group of car buyers. Here's what to consider if you're thinking about working with one:

Pros

• Easier access to credit: If you have no credit history or a poor credit score, BHPH dealerships may have less stringent standards for loan approval compared to traditional auto lenders. For some people, it may be the only way to buy a car.
• Simple car-buying process: You don't have to go through a separate loan approval process, which could be particularly onerous for buyers with bad credit. Once you buy a car from a BHPH dealership, you're done with the process.
• Low or no down payment requirement with some: Some BHPH dealers don't require a down payment at all, while others may only require a small one. For car buyers who don't have a lot of extra cash, this may feel like an ideal option.

Cons

• Higher interest rates: While you'll have an easier time getting approved, you can expect to pay a higher interest rate than you would with a comparable loan from a traditional lender.
• Higher risk of being underwater on the loan: Between high interest rates and a low or even nonexistent down payment, the value of your vehicle may depreciate faster than you can pay off the loan. If you end up with negative equity, it could be harder to sell the vehicle or pay it off if it gets totaled.
• Possible hindrance to building credit: If your dealer doesn't report your monthly payments to the national credit bureaus, you may not be able to use the loan to establish or rebuild your credit history. That said, missing a payment could have the opposite effect.
• Potential large down payment: While some BHPH dealers have low or no down payment requirements, others may require that you put down a large amount to secure the loan.
• Risk of repossession: You may have fewer options to avoid repossession with a BHPH dealer compared to a traditional lender, and some dealers may use tracking devices and shut-off switches to make the repossession process easier for them.

When Can a Buy Here, Pay Here Dealer Repossess a Car?

Before you purchase a car, it's important to ask the dealer about its repossession policy. State laws on the matter can vary, so it's important to know upfront what could happen if you can't afford to make your monthly payments. Even within each state, dealerships can vary in how they deal with repossessions, and some may be willing to work with you if you can't afford your payments. Understanding what to expect before you sign the contract can help you determine whether or not to work with the dealer.

In some cases, you may be considered in default as soon as you miss a payment, and the dealer could repossess the car without prior notice. In other cases, dealers may even install a tracking device or a "kill switch" in the vehicle to prevent it from starting if you miss a payment. However, they can't break the law during the process.

The best way to avoid repossession is to make it a priority to pay on time every month. If you're struggling financially, consider ways to cut your expenses, increase your income, or gain access to financial assistance from other sources.

If the dealer does repossess your car, it may show up on your credit report, which can make it even harder to get access to traditional auto financing options in the future. That said, a repossession may not impact your ability to buy another car from a BHPH dealer because there's no credit check involved in the process.

The Bottom Line

BHPH dealers can offer a valuable service, but it may come at a price. If you're thinking about buying a car from a BHPH dealer, take some time first to research alternatives, including traditional auto lenders.

If you've determined that a BHPH dealership is your only option, take some time to research dealers in your area, and compare their selection of vehicles, their loan terms, and which steps they may take if you end up defaulting on the loan.

Also, work to improve your credit so you can have better odds of getting approved for a traditional auto loan in the future.

Ben Luthi

Ever since I read a personal finance book in college, I've been hooked. I've covered just about everything from credit card rewards and auto financing, to student loans and cryptocurrency. I've worked in banking, auto finance, and financial planning, and I've been writing about all of it since 2013. My top priority is to give people the information they need to make the best financial decisions for themselves.