Buying a car can be a necessity but also a real challenge—especially if you have poor credit or are currently unbanked. While folks with “superprime” credit scores can get a used car loan with an average APR of around 6.8% right now, people dragging a “subprime” score of under 600 might get socked with an APR of close to 19%—or even higher.
And that’s if you can even get a loan in the first place. If you desperately need to buy a car and can’t get traditional financing from a bank or a regular car dealership (who usually partner with third parties to offer financing), you do have one final option: The “Buy Here, Pay Here” car dealership. 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 do a credit check. This is all true, but while most Buy Here, Pay Here dealerships are legitimate businesses offering a necessary service, you need to be very careful to avoid some of the more “scammy” tactics you might encounter while on their lot.
How does a Buy Here, Pay Here loan work?
A Buy Here, Pay Here car dealership operates very much like any other car dealership: You pick out a car, then work out the financing. The major difference is that the dealership itself is offering the financing. As a result, they’re free to skip the credit check, and can set the terms of the loan however they want (within the limits of local laws, of course). You buy the car from them, borrow the money for the purchase from them, and pay them back directly (sometimes you’re even required to physically show up at the dealership to make your payments).
If you can’t swing a traditional loan for a car, this can be a godsend—but there are obvious downsides.
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Limited choice. Most BHPH dealerships calculate how much you can borrow from them first, then show you the cars within that price range. That list of available cars might be depressingly short, and the cars on it depressingly old and busted.
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High interest. The interest rates at Buy Here, Pay Here dealerships are very high—typically around 20%, and sometimes even higher if they can legally get away with it. The high rates also make it difficult to refinance the loan even if your credit improves.
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Aggressive repayment. Some BHPH dealers require weekly loan payments, which can be hard to keep up with.
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Insurance. Because you’re overpaying for the car (especially once the huge amount of interest is factored in), even if you get full insurance coverage on the car, you almost certainly won’t get enough in any settlement to pay off the loan in the event that it gets totaled, leaving you to make payments on a car that no longer exists.
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High down payment. Because you have a low credit rating, many Buy Here, Pay Here dealers require large down payments as a condition of the loan.
If, despite these drawbacks, you decide that a Buy Here, Pay Here dealer is your best route for buying a car, be careful. While most of these car dealers are legitimate (if expensive), there are some scam-adjacent practices to watch out for.
No loan is too big
The whole point of a Buy Here, Pay Here car dealership is that they’ll loan money to people who can’t get a loan elsewhere—but if the dealership aggressively advertises that they will loan you any amount without a credit check, think twice. That’s a sign that their business is more about loan defaults than selling cars or even profiting from interest on loans.
Most lenders have a limit to how much they’ll lend people—even people with solid credit scores—because they don’t want to make a loan you can’t handle. But some shadier Buy Here, Pay Here places are happy to see you default on a loan you can’t possibly pay back, because they keep your down payment, repossess the car, and resell it to someone else—possibly with a similarly oversize loan.
Spot delivery
If the salesperson at the Buy Here, Pay Here lot isn’t too concerned about finalizing your financing deal and suggests you just take the car home while they iron out the loan details, walk away. You’ll almost certainly get a phone call telling you that there was a problem, and now you have to come up with more money for the down payment to make the loan work, or that the interest rate discussed won’t work and will be much higher. It’s called “spot delivery” and it leverages the fact that you already think of the car as bought, pressuring you to agree to any new terms they suggest.
GPS trackers
Many Buy Here, Pay Here dealerships require GPS trackers in the car until you pay off the loan. While this is legal in most areas (as long as you consent, though consent is typically required to get the loan approved), not only is it a privacy concern but it also suggests—again—that their business is more about repossessing cars than selling them or even servicing loans. The presence of the tracker means they expect you to default, and they’ve decided to streamline their busy schedule of repossessions to make it easier on themselves. If the dealer insists on this, you should look elsewhere for your car, if you can.
Poor condition
Finally, this isn’t a scam so much as 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 visibly used, as few of these dealers will invest in new upholstery or smoothing out dings and dents in the body. But if the car is in really poor condition, it’s good idea to think twice, even if the price seems fair, because that implies the dealer isn’t even doing the basic maintenance necessary to keep the car in good operating condition before you take possession. If you’re also pressured to pay extra for a service contract, you’re skimming awfully close to scam territory.
If you need a vehicle but your credit score is too low to get traditional car financing, a Buy Here, Pay Here dealership might be a way forward. But know what you’re getting into (a lot of interest and onerous terms), and keep your eyes open for signs that the dealership is being more predatory than they have to be.
