Car lot with poor credit or no credit at all can manage to have the car of their choice when they opt for Buy Here Pay Here (BHPH) dealerships. These dealerships are also famous for carrying out financing internally and particularly accommodate customer that cannot access conventional loans.
But do Buy Here Pay Here dealerships like credit? In this blog, we get on the specifics of BHPH financing, including credit check and what prospective buyers should expect in the process.
How Buy Here Pay Here Dealerships Work
Unlike other car dealers, Buy Here Pay Here dealers have their financing system and requirements. This credit arrangement differs from conventional car financing where external banks or credit unions are used but BHPH dealershandle credit in their entity. This means they are the originator and the financier of the product to the consumer all at once. They make their own rules when considering applicants for credit or loans ; many a time, they do not require the applicant to undergo a credit check. This flexibility can also mean that BHPH dealerships can be attractive to those with a bad credit score or those who have a bad credit score or however no credit score they can still access a vehicle.
Do Buy Here Pay Here Dealerships Use Credit?
On average, credit checks are not carried out by Buy Here Pay Here dealerships, during sales. For they give credit directly to the buyer they pay attention to the income stability, employment, and down payments more than the credit score. This is good for buyers especially those with a low credit rating, recent bankruptcy or any negative credit history on their credit report since BHPH lots will not be bothered as much with a buyer’s credit history as long as they can confirm their source of steady income and ability to pay regular installments.
But there are some BHPH dealerships that might still carry out forms of credit check, albeit not as rigorous: basically, this is where dealers run a check on the buyer’s credit history not to deny but to understand how they operate based on the records. This soft check, although doesn’t hurt the credit rating, allows the dealership to get an idea of the borrower’s potential recent financial troubles. Buyers should ensure they clarify with the dealership on their position towards credit checks because some firms may stocks credit check on the application process although it was not disclosed earlier.
Advantages of no Credit Checks
- One of the flexible features you stand to enjoy with the instant approval is the absence of credit check, which can work to the advantage of anyone with a poor or no credit rating at all and who may find it very difficult to access conventional financing.
- BHPH loans are usually associated with higher interest rates and harsher credit terms. Another factor is payment default on the automobiles bought, whereby repossession is relatively easy because lots that sell BHPH autos normally have a stronger repossession rate.
- In selling a BHPH loan as a first mile to the buyers, it is important for the dealership to tell the buyer whether or not they report with the major credit bureaus.
Disadvantages of no Credit Checks
- For them, it gives them an opportunity to buy a car which they not possibly have the opportunity to. However, the flexibility which BHPH dealerships provide in many cases is caused by considerably higher cost.
- The fourth thing is; not all BHPH dealerships report ones payment history to credit reporting bureaus. This means that if you go out of your way to make all your payments as agreed, your score is not likely to go up at all.
- That is why in Appendix B you will find some of the most frequently asked questions about buy here pay here credit checks.
Whats the Catch?
The “catch” with Buy Here Pay Here (BHPH) dealerships is that while they offer accessible financing options for those with poor or no credit, there are some significant drawbacks:
Higher Interest Rates
Most BHPH loans will have above average interest rates and in some cases more than other types of loans. This leads to the fact that buyers can pay significantly more amounts compared to an interest, with a bank or credit union loan.
Limited Vehicle Selection
While it is very common for BHPH dealers to have older cars with higher mileage on the average. While their business strategy is focused on individuals who do not possess many choices, the company does not always have newer or better models in its fleet. This may give the buyers a car that is more costly to maintain, than usual, they have to spend time and resources tranquility.
Tightening measures on repossessing of automobiles
Car dealers known as BHPH dealers are both the car financiers and the sellers and therefore have stringent measures on car lots on the missed payments. If one defaults then they can quickly seize the car , many time with much less measures in place for consumers.
No Credit-Building Potential
Some of the BHPH dealerships do not report your payments to the credit bureaus. Thus, even if all your installments are done at their right time, it won’t help in the boosting of credit score.
Altogether it can be said that though BHPH lots offer an opportunity for purchasing a car for those clients who fail in obtaining a loan contract from a standard-lending institution, more numerous and more serious “drawbacks” include higher price, worse car quality, severe restrictions, and no credit-report improving possibilities.
Questions? We Have Answers
Can I be granted a BHPH loan with poor credit?
Yes, some BHPH dealerships cooperate with people with low and unstable credit and lend money based on the income level.
Is taking a BHPH loan going to help my credit?
This is true, but, only if the dealership reports to the credit bureaus. Some BHPH dealerships do not do this, which means that you should clarify if it is something that is of interest to you.
Conclusion
Hire purchase car lots are actually common with those who have a bad credit or no credit at all and require automobile but cannot get a loan in the usual way. Since most BHPH lots avoid the regular credit check, they sell to people who have credit problems.
However, the trade offs are high cost, expensive charges like the interest rates, fixed charges and no ability to developing good credits. When considering a BHPH dealership, it is also important to know whether or not they report to credit bureaus and if they do, what their report policy is, the terms of the loan should also be looked at closely. When managed well, a BHPH dealership may be suitable for consumers who are secured a car and prepared to bear high costs and terms that are usually associated with this kind of dealership.