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Buy Here Pay Here Financing: Essential Insights You Need to Know

If you have poor or no credit, getting approved for a traditional auto loan can be a major challenge. In these situations, "Buy Here Pay Here" car dealerships may seem like an appealing option. However, while BHPH financing can help you get into a car quickly, it often comes with significant drawbacks. In this article, we'll provide essential insights into how Buy Here Pay Here financing works and discuss some important factors to consider before choosing this route.

Key takeaways

Buy Here Pay Here financing can seem like a convenient option for those with poor or no credit who need to purchase a vehicle. These dealerships offer in-house financing, meaning they handle both the car sale and the loan process. However, BHPH financing often comes with significant drawbacks. Interest rates are typically much higher than those offered by traditional lenders, and the vehicles may be overpriced. Additionally, not all BHPH dealerships report payments to credit bureaus, so these loans may not help build your credit history. Before opting for BHPH financing, it's important to carefully consider the long-term costs and explore alternative options that may be more beneficial for your financial well-being.

Please note that the information provided in this article is based on research from various sources and is accurate to the best of our knowledge at the time of writing. However, individual experiences with BHPH financing may vary, and it's always advisable to thoroughly review any loan agreement before signing.

What is a buy here, pay here car lot?

Buy here, pay here (BHPH) dealerships are car lots that provide in-house financing to customers, rather than working through third-party lenders like banks or credit unions. These dealerships typically cater to borrowers with poor credit or no credit history, offering them the opportunity to purchase a vehicle and make payments directly to the dealership.

BHPH lots are known for having less stringent credit requirements compared to traditional lenders. However, this convenience often comes at a steep cost. BHPH dealerships generally charge much higher interest rates than banks or credit unions, and may also require significant down payments and impose additional fees.

Pros Cons
Get a car quickly Overpriced vehicles
No credit check High interest rates
Could build your credit Mandatory add-ons

Variations of Buy Here Pay Here Explained

In addition to "Buy Here Pay Here," you may come across other terms that refer to similar financing arrangements. These include:

  • "On the spot financing"
  • "Tote the note"
  • "In-house financing"

Regardless of the specific term used, these phrases all indicate that the dealership itself is providing the financing and that payments will be made directly to the dealer rather than an outside lender.

How do buy here, pay here car lots work?

The process of purchasing a vehicle at a BHPH dealership differs somewhat from that of a traditional car lot. Here's a general overview of how it works:

  1. You select a vehicle from the dealership's inventory. BHPH lots typically stock older, high-mileage cars.
  2. Rather than running a formal credit check, the dealership will ask for proof of income and residence to verify your ability to make payments.
  3. If approved, you'll be required to make a down payment, which may be a significant portion of the vehicle's sale price.
  4. You'll sign a contract and begin making bi-weekly or monthly payments directly to the dealership, often at a high interest rate.
  5. Some BHPH dealerships install tracking devices or remote shut-off switches in financed vehicles to aid in repossession if payments are missed.

It's important to note that BHPH dealerships often have high default and repossession rates. In fact, some dealers build this into their business model, planning to repossess and resell vehicles multiple times.

Are buy here, pay here car lots bad?

While BHPH financing can serve a purpose for some borrowers, it's generally not an ideal option. Here are some pros and cons to consider:


  • Ability to get a car quickly, even with poor or no credit
  • No formal credit check required
  • Potential to build credit if the dealership reports payments to credit bureaus


  • Vehicles are often overpriced relative to their condition and mileage
  • Interest rates are much higher than those offered by traditional lenders
  • Dealerships may require add-ons like extended warranties or gap insurance
  • High risk of default and repossession

Given these significant drawbacks, it's generally advisable to avoid BHPH financing unless you have no other viable options for purchasing a vehicle.

If you have less-than-stellar credit, it may be tough to get approved for a car loan. Some car dealerships offer "buy-here, pay-here" financing to borrowers with poor credit — but it comes at a price.

One of the biggest issues with BHPH financing is the high cost. Due to the increased risk they take on by lending to borrowers with poor credit, BHPH dealerships charge significantly higher interest rates than traditional lenders.

Buy-here, pay-here financing can be expensive

According to data from the National Independent Automobile Dealers Association, the average interest rate on a BHPH car loan is around 20%. In contrast, the average rate for a used car loan from a bank in Q3 2020 was just 5.32%, and credit unions averaged even lower at 3.24%.

In addition to high interest rates, BHPH dealerships often sell vehicles for far more than their actual value. Because they aren't bound by the same loan-to-value considerations as banks and credit unions, BHPH lots can get away with charging prices that far exceed what a vehicle is actually worth. This puts borrowers at high risk of becoming upside down on their loans.

These factors, combined with the low credit profile of many BHPH borrowers, lead to high default rates in the industry. More than one-third of BHPH loans end in default. This is not only harmful for the borrower's credit, but can also lead to the added stress and expense of having a vehicle repossessed.

Alternatives to buy here, pay here car lots

Before resorting to BHPH financing, it's worth exploring some other options that may be available to you.

Shop around for a car loan

Even with poor credit, you may be able to find a traditional lender willing to work with you. Credit unions, in particular, tend to be more flexible and may offer lower rates than banks. Online lenders are also worth considering, as they often have lenient credit requirements. Shopping around allows you to compare offers and find the best deal possible.

Apply for a car loan with a cosigner

If you have a family member or friend with good credit who is willing to cosign your loan, this can help you get approved and potentially secure a lower interest rate. Just keep in mind that your cosigner will be equally responsible for the debt, so it's crucial to make your payments on time.

Take time to save for a down payment

Saving up for a significant down payment can improve your chances of getting approved for a traditional car loan and help you qualify for better terms. Aim to save at least 10-20% of the vehicle's purchase price.

Buy from a private seller

Purchasing a used car from a private seller rather than a dealership can often result in a lower price. You'll need to handle the financing separately, but this allows you to shop around for the best loan terms rather than being tied to a single dealer's offering.

Written by
Henry Arora
Head of Business Development

Experienced Manager with a demonstrated history of working in the Fintech/Customer services/Debt Collections industry. Skilled in Management, Debt Collections Sales, Leadership, Team Management, and Public Speaking. Strong operations professional graduated from Madhurai Kamraj University.

  • Fintech/Customer services Expert
  • Public Speaking
  • Debt collection Expert



Do buy here, pay here car lots ruin your credit?

BHPH financing doesn't typically involve a credit check, so simply getting a loan from one of these dealerships won't impact your credit score. However, if the dealership reports your payments to the credit bureaus, making on-time payments can help you build positive credit history. Conversely, missed or late payments can harm your credit.

Can I finance a car with bad credit?

Yes, it is possible to finance a car with bad credit, though you may face higher interest rates and down payment requirements. In addition to BHPH dealerships, some traditional lenders specialize in working with borrowers with poor credit.

What's the minimum credit score I need to finance a car?

There's no universal minimum credit score required for a car loan, as requirements vary by lender. However, Experian data shows that the average credit score for a used car loan is 684, with scores below 660 considered subprime. Some lenders may approve borrowers with scores as low as 500, though interest rates will be very high.

Does buy-here, pay-here financing go on your credit?

This depends on the specific dealership's practices. Some BHPH dealerships report payments to the credit bureaus, while others do not. If they do report, your payment history -- good or bad -- can impact your credit score. In conclusion, while Buy Here Pay Here financing may seem like a lifeline for those struggling to secure a traditional car loan, it's important to carefully weigh the significant costs and risks involved. By understanding how these arrangements work and exploring alternative options, you can make an informed decision about the best path forward for your individual circumstances.

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