The Pros and Cons of Buy Here Pay Here Car Dealers

If you’ve been turned down for a subprime car loan and have a down payment either with a trade-in or in cash, shopping for a vehicle at a buy here pay here car lot can be great for getting the vehicle you need right now. But if you’re looking for a deal, or, in many cases, for a way to improve your credit, financing a car at one of these dealerships may not be the way to go.

The last stop

If you’re reading this article, we’re going to assume that you’ve tried every other way to get financed for a car loan. That means applying for a loan through your credit union or a bank that you do business with first and, if you were turned down and have a down payment or trade in, going to a large franchised new car dealership with a special finance department or a big used car lot such as CarMax and getting turned down there.

On one hand

You should always try those sources first because there are several drawbacks to going through in-house financing. Those drawbacks include:

High interest rates: Most of these lots charge high interest rates - in many cases the state maximum - to offset the risks that come with these loans.

Large down payments: These dealers finance the vehicles on their lots themselves, and may ask for down payments of 10-30 percent of the price of the vehicle (a practice, by the way, that usually covers what they paid for it).

High prices: In many instances, you can forget about Blue Book values when shopping at a buy here pay here dealer. This is the dealership of last resort for most buyers and, therefore, it’s a sellers market so you’ll find no bargains here.

Small inventory of older, higher mileage vehicles: Speaking of vehicles, you probably won’t find any new cars sitting on their lots.  In addition, since these vehicles usually don’t come with a warranty (or if they do it’s a limited one), any repairs will be on your dime.

Pay in person: Instead of a monthly payment, many dealers will ask for weekly or even bi-weekly payments, depending on your income and pay schedule. This can be a real problem if you don’t live close by.

Not always possible to rebuild credit: Finally - and here’s the kicker - since many of these dealers don’t check your credit before approving you for a loan, they may not be reporting the loan or your on-time payments to the credit bureaus. Without this information, your car loan won’t help you raise your credit score.

On the other hand

Even with all those disadvantages, however, there’s still a place for these dealers in the marketplace, as they can be especially helpful to consumers who’ve been turned down for a car loan everywhere else.