An Alternative to Buy Here Pay Here Car Lots

An Alternatives to Buy Here Pay Here Car Lots

If your credit is less than perfect and you’ve been turned down for a car loan with a conventional lender, you may have more of a better choice than a buy here pay here car lot.

Buy Here Pay Here Car Lots

Up until the late 1980s, the only choice that car buyers had, if they were turned down for a car loan at a bank, credit union, or car dealership, was a buy here pay here - sometimes called tote the note - car lot.

These small independent dealers generally stocked vehicles with very high mileage and charged most of their customers the highest interest rate allowed by their respective states. As both dealers and lenders, they kept close tabs on buyers, often repossessing vehicles if a payment was just one day overdue, resulting in missed-payment and repossession fees being added to the payment and due immediately if the buyer wanted to keep the car.

Many of these dealers have cleaned up their acts, often with better and larger vehicle inventories, but many haven’t. Furthermore, if you’ve been turned down by one or more conventional lenders, you may not be stuck going with a buy here pay here (BHPH) dealership.

No Help for your Credit

If you have bad credit, you might think it’s nice that BHPH dealers will rarely check your credit, and many don't check it at all. But the trade-offs are typically more than higher than average interest rates, large down payments (20% or more of a vehicle's selling price) and used car-only vehicles for sale. Most importantly, most smaller BHPH lost won’t report on-time loan payments to the credit bureaus. This means your on-time payments won’t raise your credit score.

Private Vehicle Sales

A second alternative is buying from a private seller. However, this only works if you have the cash to buy a vehicle outright. In addition, if you're looking for a vehicle that will last, especially in today’s hot used car market, you’re going to need a lot of cash since taking out a direct loan from a bank or credit union is not an option if you’ve already been turned down for a loan from a conventional lender like a bank and/or credit union.

Subprime Lenders

If a tote the note dealer doesn’t appeal to you and only older, high-mileage cars are available from private sellers, you may be able to work with a dealership that specializes in helping people with less than perfect credit - dealers that are signed up with subprime lenders.

Subprime lenders don’t loan directly to borrowers but instead offer loans through the special finance departments at many dealerships, most of whom are franchised dealers, but also some independent dealers as well. These lenders know that people who are struggling with temporary credit issues often need an opportunity to demonstrate that they're more than just a poor credit score.

These lenders look at income, employment, and residence stability for a better picture of your financial situation. They’ll check your credit score and reports, but in addition to your stability, base a loan approval on your ability and past borrowing history that shows a willingness to repay loans.

Finding a Dealership

Unless it’s spelled out in their advertising, it can be difficult finding a dealership with a special finance department. Our suggestion would be to find the largest dealer in your area with a domestic franchise. Not only does this dealer do a volume business, chances are it’s large enough to have a special finance department. If you don’t want to waste a trip, check their website for this information or call the dealership and ask for the special finance manager.