Buy Here Pay Here vs. Bad Credit Car Loans: What’s the Difference?

August 6th, 2015 by

When you need to purchase a car, but don’t have the best credit to do so, you might consider two financing options: buy here pay here or bad credit car loans.

The trick is sorting out which one is the better deal for you and understanding the differences between the two.

With Buy Here Pay Here financing deals, you can find and pay off your car loan in one convenient location.

Read on for a quick explanation of what buy here pay here financing means and how it’s different from bad credit auto loans.

Buy Here Pay Here, Broken Down For You

couple consults with agent, signing paperwork

This financing option is absolutely ideal if going down the traditional loan route hasn’t panned out for you. If your credit history is getting in the way of you successfully securing an auto loan, a BHPH deal is the way to go.

So, what does Buy Here Pay here actually involve?

Once you find a car dealership that offers BHPH financing, you will be able to determine the terms of the loan and make the monthly payments on that loan directly at the dealership.

Since the BHPH dealer will be selling you the car, you’re practically guaranteed to be approved, which isn’t the case with traditional auto loans, even those designed for bad credit cases.

Basically, all it takes to be approved for a BHPH deal is a proof of residence and proof of a steady, reliable income.

As quick and painless as this sounds, remember that everything comes with a price.

In this case, you’ll feel the sting when the dealer presents you with the interest rate they are willing to give you. Expect your rate to be a double-digit figure.

This is where BHPH dealers make their money. With the significantly higher interest rates they charge, the dealer will profit as much off the loan as on the actual car sale.

You will want to make sure that the BHPH dealer you decide to do business with is located nearby your residence or place of employment. Instead of mailing your payments every month, you might be expected to drop off payments on a weekly or biweekly basis to the dealer directly.

There are some BHPH dealers that will accept online or over-the-phone payments, but in most cases, the expectation is that you will physically show up with payment in hand.

In some ways, “Buy Here Pay Here” is becoming an outdated term. Lots of traditional dealerships, both new and used-car dealerships, offer BHPH financing. However, they might signal this through different phrasing, like “We Finance.”

A good place to start when it comes to finding a BHPH dealership is to check in with franchised dealerships associated with major automotive brands, like Ford or Chevrolet. If they advertise anything about credit help or simple and convenient financing, chances are, you’ve found a BHPH dealership.

Another important thing to keep in mind with respect to BHPH financing is that it reverses the usual car shopping process.

At a traditional dealership, or under more favorable credit terms, you would pick out the car you want and then see about financing options.

But when it comes to BHPH financing, the dealer will qualify you for financing first by establishing how much they are comfortable lending you for your purchase.

In some cases, because BHPH dealers tend to buy older cars, they might be interested in putting your old car, no matter how beat up it is, towards the purchase of your new car.

Once that figure is determined, the dealer will then show you those cars that you can consider for purchase, based on your financing terms. In this case, the pickings will likely be slim. Don’t expect much in the way of variety as far as your purchasing options are concerned.

Also, and especially because you’re already struggling to overcome your bad credit history, make sure you understand what the BHPH dealership’s policy is regarding late payments on your loan.

Find out if you have a grace period and what it’s duration is, in the even that you need one. You want to know exactly how long you have between a missed payment and potential repossession of your vehicle.

Working with a BHPH dealer can actually be a great way to rebuild your credit, but make sure that the BHPH dealer financing your purchase actually does report your payment history to the credit agencies.

Now, even if you suspect you have credit issues or weak spots, make sure you check with the credit bureaus first so that you know your actual score. From there, it’s always better to consult with traditional lenders, like credit unions, banks, and finance corporations, before anywhere else.

If none of those will work with you, then your best option is to approach a BHPH dealership for auto financing.

Click this link to find BHPH dealers in your area.

Understanding Bad Credit Auto Loans


How do you know if you have bad credit?

First of all, you need to consult the three principal credit agencies, Equifax, TransUnion, and Experian to see where your score falls.

The basic breakdown looks something like this:

Excellent: 740-850

Good: 680-740

Acceptable or Fair: 620-680

Subprime: 550-620

Poor: 300-550

If you fall in that subprime or poor credit score range, you’ll need to do some damage control, even if you need to purchase a new car quickly.

In order to get a better rate, see if you can do some planning ahead of time. Take a few months to ensure that you’re paying your bills by their due dates.

At the same time, save as much as you can. If you can approach a lender with approximately 20 percent of the purchase price ready as a down payment, you’ll likely be offered more favorable terms and rates.

Remember, you’re not alone. Most consumers fall between the average, subprime, and bad credit range, which means lenders have no choice but to work with you to establish a reasonable automotive loan.

Another option is to approach a lender with a cosigner. A cosigner agrees to be responsible for your payments if you can no longer make them. But, your cosigner needs to have outstanding credit to make up for your weaker credit score in order for the lender to approve the loan.

The Final Verdict – Buy Here Pay Here Financing vs. Bad Credit Auto Loans

Car salesman or rental man giving over a car key

The final decision regarding whether you should pursue a BHPH financing deal or a more traditional bad credit auto loan is truly determined by your credit score and financial standing.

The better of the two is the bad credit auto loan; however, for some people that just isn’t possible.

If you find yourself in that situation, then researching BHPH deals is absolutely the way to go.

You’ll need reliable transportation if you’re going to rebuild your credit, presumably so that you can meet professional obligations and start putting your paychecks towards a balance of paying down debt in a timely fashion and socking away some of your earnings in a savings account.

In either case, the good news is that bad credit does not have to be a permanent condition. You can take steps to rebuild your credit and will likely see positive results faster than you might think.

Paying your bills on time, and absolutely meeting your BHPH payments by their due date, is an effective and easy way to boost your credit back up to good standing.

Assess your financial reality and take the steps to secure financing that will be reasonable for you to manage, not only when it comes to your vehicle purchase, but also your overall credit rating.