There’s nothing inherently bad about Buy Here, Pay Here dealers. They provide a service to those automotive buyers without good credit who sometimes need a used car in a hurry.
However, it’s important to keep in mind most Buy Here, Pay Here dealers (BHPH dealers) aren’t in business to establish long-term relationships. They’re trying to make the most profit they can from financing used cars.
Here are five things you need to know before purchasing a used car from a BHPH dealer.
You’re Buying a Car; They’re Selling a Loan
BHPH dealers are in the finance business. Used cars are literally their vehicle for selling you high-interest financing. Don’t be surprised to find yourself with 18 to 21 percent loans or possibly even higher. Buy Here, Pay Here financing is expensive because the sellers assume you’re going to default on your loan, and it’s expensive to repossess a used car.
Does that make a difference? A $10,000 loan at 4.5 percent (a good rate for those with good credit) will cost you $297 a month. At 21 percent you will pay $376 a month. Over the course of 36 months, you would end up paying $2,844 more for a $10,000 loan. That’s a decent return on investment for the BHPH dealer.
The BHPH Dealer Will Know Your Every Move
When you purchase a used car from a BHPH dealer, you basically consent to having a GPS device installed in the vehicle that you can’t remove. The dealer wants to know where the car is in case it has to be repossessed. Some dealers will even install devices that remotely disable the car. That sounds rotten, but the dealers are doing it to protect their investment.
Only Go to Those Who Report Payments
Now granted, this is a double-edged sword. It’s important to have responsible behavior reported to credit bureaus so you can rebuild your credit. However, irresponsible behavior will get you punished when it’s reported to the credit bureaus. Your ultimate goal is to restore your credit worthiness.
Get the Car Inspected
As mentioned above, BHPH dealers are in the business of selling loans, not used cars. How can I put this delicately? They may not be peddling only the finest used cars on the market. Have an independent mechanic take a look at any car you’re considering purchasing. You’re going to pay at least $100 to get this done, but it’s money well spent. After all, your loan expenses are high. You don’t want to get hit with surprise maintenance issues, too.
If the seller won’t let you get the car you want inspected? Walk away. That’s the smartest thing you’ll ever do.
Buy Less Car Than You Can Afford
A BHPH dealer will happily finance you for as much as possible, but resist the temptation. Presume a dealer says you can afford $300 a month. See what $250 a month might buy you and bank the other $50 a month. At the end of three years, you’ll have $1,800 saved. You’ll need that money for a down payment if your car isn’t doing well after three years.
Something else you could do is take that $50 a month and invest it in proper maintenance of the car (or set it aside for a repair fund). That could help give the car a longer life than its loan.
There’s nothing sweeter than paying off a car loan and knowing you have months, if not years, left in the vehicle before you’ll have to finance again.
Shopping for a new or new-to-you vehicle this weekend?
Bring along CarGurus’ mobile app to help check prices, find good deals, and research cars on your smartphone.