Buy Here, Pay Here (BHPH), In-House Financing

Used Cars

These are places where the dealer finances car loans himself (BHPH is sometimes called in-house financing.).

Basically, he is the bank and he takes on all the risk. That’s especially true because BHPH dealers cater to people with bad credit – deep subprime customers who typically have credit scores less than 550.

It’s not hard to find people who are out of luck, out of work, and grateful for the opportunity to finance a car at all. But that opportunity comes at a steep price, which is either folded in or added on in the form of interest rates up to 25%.

So here are six tips to consider if you’re thinking about Buy Here-Pay Here:

1. Can you wait? Say you’re going to spend $300 a month on BHPH car payments. Can you put off your purchase by a few months and save that money? Reed says if you grow your down payment, you may be able to find a friendlier loan, or even buy a used car outright.

2. How much is the down payment? A bigger down payment reduces the balance on which you pay interest, and that’s good. But how much is too much? If you put $3,000 down on an older car, you may be handing the dealer enough to cover its actual value. The rest is profit. Again, that money might be better spent on a friendlier loan or a private purchase.

3. Where’s the nearest computer? This relates to another good question: Where’s the nearest door? Go home; think it over; don’t rush. Try to go online and comparison shop. Look up a vehicle’s history on CARFAX.com. You can appraise a vehicle and calculate maintenance costs on Edmunds.com. See what other deals are available in your area.

4. Take a test drive. Preferably to a mechanic.  Do you have the option to get an independent inspection before signing? Take it. Take it now. A lot can happen in the 100,000 miles that many used vehicles rack up. Get advice from a third party.

5. Do you feel like the dealer is doing you a favor? I like it because it speaks to the emotional aspects of A) needing mobility and B) needing money. Reed says when people feel vulnerable they are less likely to negotiate. And you should negotiate.

6. Does the dealer report to the credit bureau? These days, it’s easy to wreck your credit, but you want to be able to build it too. Make sure a successful track record of payments can, theoretically, count in your favor.