Beware of These Buy Here, Pay Here Red Flags at Car Dealerships
Buying a car can be a necessity, but it can also be a real challenge, especially if you have bad credit or don’t currently have a bank account . While people with a “super-prime” credit score can get a used car loan with an average APR of around 6.8% right now , people with a “sub-prime” credit score below 600 can get an APR of around 19% or even higher. .
And this is if you can get a loan at all. If you desperately need to buy a car and can’t get traditional financing from a bank or regular car dealership (which usually partners with third parties to offer financing), you have one last option: Buy Here, Pay Here . car showroom These small dealerships specialize in selling cars to people who can’t get traditional financing, and usually advertise that they don’t care about your credit score and won’t run a credit check. All of this is true, but while most Buy Here Pay Here dealerships are legitimate businesses offering essential services, you will need to be very careful to avoid some of the more “fraudulent” tactics you may encounter while on their lot. .
How does a Buy Here Pay Here loan work?
A Buy Here Pay Here car dealership works just like any other car dealership: you choose a car and then figure out financing. The main difference is that the dealership itself offers financing. As a result, they may skip the credit check and can set loan terms as they see fit (within local laws, of course). You buy a car from them, borrow money from them for the purchase, and pay it back directly (sometimes you even have to physically show up at the dealership to make the payment).
If you can’t get a traditional car loan, this could be a godsend, but there are obvious downsides.
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Limited selection. Most BHPH dealerships will first estimate how much you can borrow from them and then show you cars in that price range. This list of available cars can be depressingly short, and the cars on it are depressingly old and broken down.
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High percentage. Interest rates at Buy Here Pay Here dealerships are very high – usually around 20% , and sometimes even higher if they can get away with it legally. High rates also make it difficult to refinance a loan, even if your credit improves.
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Aggressive repayment. Some BHPH dealers require weekly loan payments , which can be difficult to meet.
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Insurance. Because you’re overpaying for the car (especially when you factor in the hefty amount of interest), even if you get comprehensive car insurance, you almost certainly won’t have enough to pay off the loan in the future. in case the amount is calculated and you have to pay for a car that no longer exists.
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High down payment. Because you have a low credit score, many Buy Here Pay Here dealers require large down payments as a condition of the loan.
If, despite these disadvantages, you decide that a Buy Here Pay Here dealer is the best option for purchasing a car, be careful. While most of these car dealers are legitimate (albeit expensive), there are some scam methods to watch out for.
No loan is too big
The whole point of a Buy Here Pay Here car dealership is that it lends money to people who can’t get credit elsewhere, but if the car dealership aggressively advertises that they will loan you any amount without a credit check, think twice. . This is a sign that their business is more about defaulting on loans than selling cars or even making a profit from the interest on the loans.
Most lenders have a limit on the amount they lend to people—even people with solid credit scores—because they don’t want to give you credit you can’t handle. But some of the shadier Buy Here Pay Here places are happy to see you default on a loan you can’t pay off because they keep your down payment, repossess the car, and resell it to someone else – perhaps with an equally oversized loan. .
Spot delivery
If the salesperson at the Buy Here Pay Here store isn’t too concerned about completing your finance deal and suggests you just take the car home while they work out the loan details, walk away. You will almost certainly receive a call saying that there is a problem and you now need to find more money for a down payment to make the loan work, or that the interest rate being discussed will not work and will be much higher. It’s called “spot delivery” and it takes advantage of the fact that you already think of the car as purchased, forcing you to agree to whatever new terms they offer.
GPS trackers
Many Buy Here Pay Here dealerships require GPS trackers in your car until you pay off your loan. While this is legal in most areas (subject to your consent, although consent is usually required for loan approval), it is not only a privacy issue, but also suggests – again – that their business is more about repossessing cars than selling them. them or even loan servicing. Having a tracker means they expect you to default, and they have decided to simplify their busy withdrawal schedule to make it easier for themselves. If the dealer insists on this, you should look elsewhere for the car if you can.
Poor condition
Finally, this isn’t so much a scam as it is a huge red flag: Buy Here Pay Here dealerships sometimes differ from traditional car dealerships in terms of the work they put into used cars before reselling them. The cars may be beat up and clearly used, as few of these dealers will invest in new upholstery or smoothing out dents and dents in the body. But if the car is in really bad condition, you might want to think twice, even if the price seems fair, because that means the dealer isn’t even doing the basic maintenance needed to keep the car in good running order before you take ownership. . If you are also forced to pay extra for a service contract, you are getting very close to scam territory.
If you need a car but your credit score is too low to qualify for traditional car financing, a Buy Here Pay Here dealership may be the answer. But know what you’re getting into (lots of interest and onerous terms) and watch for signs that the dealership is being more predatory than it needs to be.