The Buy Here Pay Here Financing Alternative

by Don Elliott on April 21, 2011

At automotive dealerships, the term “Buy Here Pay Here” or “BHPH” refers to a type of financing where the dealer carries the loan at the dealership. Typically, the buyer purchases the car and makes payments at the dealership location. Because there is no bank approval necessary to purchase a car, for a person with bad credit, BHPH is usually the only way that they can own a car.

Buying a car with Buy Here Pay Here financing is similar to buying a car at any car dealership. The one exception is that the BHPH dealer will qualify the customer’s ability to pay prior to choosing a vehicle. Qualifications include:

  • A valid driver’s license
  • Proof of employment with current pay stubs (minimum earning requirements vary by dealer)
  • Cash down payment
  • Financial information including bank statements, rental/mortgage documents, credit card statements and utility bills from place of residence
  • References with contact information
  • Social Security card
  • Minimum age requirement which varies by dealer

Choosing a car is the next step in the process. Dealers who provide BHPH financing understand the financial situation faced by their customers. The cars they sell need to stay in good operating condition or their customers will be unable to make their payments. Buyers should expect to buy a car in reasonably good mechanical condition, but not necessarily a perfect condition car.

Because of banking regulations, BHPH dealers typically set up a related finance company (RFC) to approve loans and track payments. The dealer’s RFC may have a different name for compliance and accounting reasons, but they are both owned by the dealership.

Payments on BHPH loans are made weekly or biweekly in person at the dealership and often in cash. Some dealers accept money orders. Others may accept automatic withdrawal if the customer has a checking account. Late payments of even one day can result in the dealer repossessing the vehicle. It is important to understand the dealership’s payment terms to avoid loosing much needed transportation.

A word of caution! Some BHPH dealers offer to improve their customer’s credit as part of the service offered at their dealership. Generally what that means is that the dealership will report payment history to the various credit bureaus. That’s it! Making car payments on time will certainly help to improve a person’s credit. However, a consistent payment of all commitments is necessary to gain traction for an improved credit score.

Buying a car with Buy Here Pay Here financing is not normally done at the lowest possible used car value because the dealers take on a lot of financial risk as a part of this transaction.  However, considering that reliable transportation is absolutely necessary for most people to get to work, the grocery store and to support a family, it is often a necessary component of the deal. When unfortunate circumstances cause credit scores to go down, your Buy Here Pay Here dealer is there to provide the vehicle you need.

Have you bought a car from a Buy Here Pay Here dealer? Send us a comment about your experience.

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