Are you in dire need to buy a car but are worried about having a low credit rating? Don’t worry! We have got you covered!
The term “Buy Here, Pay Here” refers to the process by which people engage in auto dealerships where the vehicle financing is done in-house. In lay terms, it is a process of selling off cars effectively via in-house financing, for those buyers who typically have a bad credit score.
Imagine that you are a potential buyer of an automobile, with a less than impressive credit score. This may pose a challenge for a car loan approval for your purchase. This is where “Buy Here, Pay Here” comes into play. It provides an avenue to buyers with poor credit.
Manav wishes to expand his car dealership business. He decides to focus on his marketing strategy in order to compete with brand-dealership-oriented businesses that attract the affluent crowd in his region. In a reinvention of strategies, Manav decides to target the section of the population that cannot afford traditional financing terms of big players. Due to this very reason, he starts facing on an in-house basis, laying the foundation of a BHPH dealership. His financial terms do not ask for preliminary credit checks and offer no-money-down policies. He keeps a close eye on the customers in order to keep repossession as a ready option!
This is critical to ensuring the success of the BHPH dealership. It is essentially a finance business that requires thorough understanding and commitment from the end of the business owner. For this, it is critical that enough time, energy, and resources are committed to learning about the BHPH Business. Effective job understanding and loan collections are the success of BHPH dealerships.
BHPH Dealerships are not isolated projects and require heavy investments. Many of the popular models under this scheme tend to cost thousands of dollars. Also, while putting the cars up for sale you are only collecting the down payment. It requires some time for you to be able to have enough money to restock your inventory. It is thus advisable to have some money in your bank account for investing.
Usually, the customer base that avails the BHPH dealerships tend to belong to the segment that are willing to buy but do not qualify for means of traditional financing. It also consists of those people who have a poor credit score and know they will get turned down for traditional financing. The average age of a customer in this market is 35 years and they usually tend to belong to the lower middle class or the working poor segment of the economy.
It is advisable to have an organized structure of repayment terms in order to ensure the condition of the vehicles. More expensive vehicles generally tend to have longer payment terms and result in more money used in the longer run. This also ensures an increased probability of risk on the vehicle if the repayment is not made. The price point has to be in tandem with your business.
The Buy Here, Pay Here dealership, through a convenient means to pay for your vehicles, does come with its own sets of positives and negatives. They are different from the traditional dealerships which require financing from prospective vendors and focus on third party payments made by the customer. The pros and cons are discussed further to give you a real picture of how this dealership might turn out for you-
This is one of the foremost pros of BHPH dealerships. Buy here, pay here dealers tend to sell out and finance vehicles to customers who might have a history of bad or no credit. The advertisements of slogans like “no credit but auto-loans” reaffirms this. The entire idea is to provide avenues to people who do not have great credits and give them a chance to be able to purchase cars without having any fear of rejection from other financial bodies.
This deal is usually meant to cater to the customer base which is composed of people from the lower middle or working poor economic class. As a result, BHPH dealerships offer customers an opportunity to buy vehicles with no money down or even with a small down payment. The offer of being able to purchase a vehicle without the perfect credit requirement is lucrative and allows people from not-so affluent backgrounds to engage in vehicle purchasing.
The process for the BHPH dealership is simple and convenient. It allows you to finance and buy vehicles at the same time. The idea is to focus on making payments directly to the dealership where the purchase has been made in a straightforward manner. Dealers guide their customers throughout the process. Even for a layman simple research would be enough to understand the purchase process and take full advantage of the same.
There are bigger risks involved in a BHPH dealership. Interest rates on loans from such dealerships can be higher than the ones given out by banks and other lenders. Similarly, banks and other automated lenders mau limit what they intend to lend to the customer, depending upon the value of the vehicle in question. You may end up paying more money than required.
Dealers have to be sure that they will get repossession of the car in the future. This can be difficult if customers stop making payments. In a good amount of cases, buy here, pay here dealers tend to install tracking devices in vehicles. These devices help in tracking the car and also sometimes stopping them from starting. This is done so that the dealer may be able to recover the car in the future.
The payments that have to be made to BHPH dealers tend to be non-consistent. They might require payments on a weekly or bi-weekly basis which can prove difficult and inconvenient in comparison to the monthly payment schedule. Since the payment is dealt with directly with the dealer, there is a paucity in the options of payment available.
Yes, it is possible to refinance loans on BHPH cars. You can do this by replacing it with new loans from different lenders. A number of different bodies provide refinancing opportunities on buy here, pay here car loans. However, it is not devoid of challenges. In majority of the cases, since BHPH lenders and buyers don’t often report to the credit bureaus, they might not have enough credit to be able to finance a loan. In other cases, BHPH lenders may be giving loans on old, high-mileage cars on which refinancing might be difficult to apply.
BHPH payments usually do not take credit scores into consideration. Credit reporting agencies can help in improving credit scores if you make regular payments. But that is not the case with BHPH score since the purchases can be of low value and the cost of reporting can be high. However, applying for a BHPH loan still does not impact credit negatively. Dealers don’t run credit checks on loan applications, so there is no likely reason for an enquiry about the same. Also, if BHPH leadership does not end up repossessing cars after the loan endowment process, it would not show in your credit report either which can help save from further problems in the future.
It has been reaffirmed time and again how the Buy here,Pay Here models of loaning tend to generate higher rates of interest over their traditional counterparts. Reports from NIADA suggest that the average interest rate charged on Buy Here, Pay Here loans is around 20-25%, which is much higher than the rates you would find while engaging with auto loans, or traditional financial modes which are provided by most banks and credit agencies.
We hope that we were able to give you a comprehensive understanding of the Buy, Here Pay, Here model! All risks and cons considered, it is definitely one of the options that you can consider if you wish to purchase a vehicle and don’t have a perfect credit score! It goes a long way in getting people on the same page!
Hello Friends! This is Firan Mondal, a Mechanical Engineering having more than 14 years of experience in various industries. I love Automotive Engineering and it’s my pleasure to associate with this subject. Currently, I am associated with an MNC company, exploring my knowledge domain in the Automotive sector and helping people to select relevant dealers in their footsteps without any hindrance.