Buy Here Pay Here (BHPH)

Buy here pay here (BHPH) refers to used car dealers that sell vehicles as well as finance them, usually to buyers with bad credit.

BHPH dealers generally sell older cars with high mileage, usually to purchasers with poor credit scores. BHPH dealers offer vehicle loans at interest rates that are much higher than market rates and bank lending rates. BHPH dealers are different from traditional dealers that request financing from outside lenders, with customers generally making payments to a third party. However, some traditional car dealerships have started offering the BHPH option.

Many BHPH dealers sell and finance vehicles to customers with no and poor credit histories. They often advertise no credit, no problem as well as no credit check auto loans. Dealers may offer to sell a car with no money down, or only a small down payment on a car, such as $500 or less. Buying a car and financing it at the same time and making payments directly to the dealer simplifies the purchasing process. However, loans from dealerships offering in-house financing may carry higher interest rates and require more frequent payments. Some dealerships may require down payments high enough to cover their original purchase price for the vehicle.

Banks and other auto lenders normally limit vehicle purchase loan amounts based on the vehicle. But a BHPH dealership providing financing may finance the car for an amount that far exceeds its value. And, warranties may not be offered, or may carry excessively high deductibles. The lack of cash flow results in BHPH dealerships going out of business more often than traditional car dealerships. A BHPH dealership may be cash-constrained by tight repayment schedules and if these are not met, it may close.

Timely payments on an auto loan can help improve a buyer’s credit score, but BHPH dealerships may not report payments to the major credit bureaus, so a buyer’s good payment habits would not be reflected in their credit score. Because of the high risk in lending to those with poor credit history, dealers may install a device to track the car or prevent it from starting in order to help them repossess the vehicle if a customer misses payments.

Options to avoid having to make a BHPH purchase for consumers include taking time to improve their credit score, especially following bankruptcy, and saving for a down payment. If they make a BHPH purchase, they may be able to refinance the car at a better rate once their credit score is higher. They also can engage a co-signer with a good credit score, or they can look for dealer incentives such as cash back rebates.