Understanding Large Down Payments at Buy Here, Pay Here Dealerships

March 14th, 2016 by

There are myths floating around about Cincinnati buy here, pay here car dealerships. Some people say they are out to get you, provide exaggerated examples of interest rates paid, or tell fabricated stories about unwarranted car repossessions. None of these are true, of course. Buy here, pay here dealerships aren’t out to get you, they are here to help you. The interest rates are higher than average because they deal with bad credit consumers, and the car repossessions are only reserved for those who don’t make payments. Perhaps one of the biggest misconceptions floating around, is the gigantic down payment they force on you in order to make your car purchase. Just like the interest rate, the number is typically exaggerated.

Exaggerated perhaps, but never forced. Buy here, pay here down payments are, however, higher than average. But, they are intended to benefit you and the BHPH dealership. Overall, a large downpayment works well for both the consumer and the dealer; here’s how.

For The Dealership’s Benefit

First of all, BHPH dealerships typically pay the bad credit consumer’s taxes up front. This means, if you drop a small down payment, the dealership will need to pay the remainder of your taxes. If your taxes end up being around $500, and all you can drop is $200, then they will need to pay $300. Therefore, a higher-than-average down payment is needed in order to cover the cost of taxes.

Secondly, the dealership needs a larger down payment to help protect their financial interests. If you make a large down payment on a car, that means you are a lot less likely to default on it. In turn, it gives the dealers peace of mind when you offer/accept to pay a higher-than-average down payment because it shows you are willing to be an honest patron.

I’m not saying you specifically would default and try to sham a BHPH dealership, but it does happen. People will get a car from these places, and then just disappear with it overnight. Or they’ll crash them, dump them, use them for parts, or any other foolish money-making scheme they can think of.

With a large down payment, the dealer has assurance that you won’t do that. The people looking to scam a dealership wouldn’t go through the effort of putting a larger down payment on a vehicle, only to default on it.

Financially, It Makes Sense For You

This larger down payment also makes sense for you. Financially, you will be far better off in the future. Why? A large down payment shaves months of payments off your car loan. For example, if you get approved for a car that costs $7,000 and you drop $2,000 on it, then you will eliminate a large chunk of the total cost. This means a shorter loan term, smaller monthly payments, and less interest paid.

The benefits don’t stop there, you will also be on the right path to rebuilding your credit. Like I said before, if you drop a large downpayment, you will be less likely to default on a loan. This not only shows financial responsibility, but it also makes payments easier in the future. Those on-time payments are a surefire way to raise your credit score, and get back on track.

It’s for this reason alone that a large down payment is a win-win situation for you and the dealership. Because regardless of what you hear, buy here, pay here dealerships are there to help you. They don’t want to scam you, and at the end of the day, they are the ones taking the risk by financing bad credit consumers.