Struggling to get a car loan due to bad credit? You’re not alone; 17% of U.S. auto loans go to subprime borrowers. With average used car prices hitting $27,000, traditional lenders often say no. That’s where ‘Buy Here Pay Here’ (BHPH) dealerships step in, offering in-house financing when banks won’t. But is it the right move? Let’s find out.
According to Experian’s State of the Automotive Finance Market report, in 2024, nearly 17% of auto loans in the U.S. were issued to borrowers with subprime credit scores (below 600). That’s a significant chunk of the market, millions of people who may struggle to qualify for traditional auto loans.
To make matters tougher, the average new car price in the U.S. has shot up to over $48,000, while the average used car hovers around $27,000. With inflation, tighter credit conditions, and rising interest rates, many buyers simply can’t get approved for financing through banks or credit unions.
This is where Buy Here Pay Here (BHPH) dealerships come into play. They fill a very specific gap in the market, offering in-house car loans to people with bad credit, no credit, or financial struggles. In fact, some reports suggest that around 1 in 4 used car dealerships in the U.S. operate under the BHPH model or offer it as a financing option.
It’s not without its challenges, though. Interest rates from BHPH dealers can exceed 20%, and the risk of repossession is much higher than with traditional loans. Still, for many buyers, especially those who need a vehicle for work or daily life, BHPH may be the only route available.
So, what exactly is Buy Here Pay Here? How does it work? And is it worth considering? Let’s break it all down.
What is buy here pay here?
A Buy Here Pay Here dealership is a type of car dealer that provides its own financing instead of relying on banks or credit unions. Unlike traditional dealerships, where you might get a loan from an external lender, BHPH dealers act as the lender themselves.
These dealerships often cater to buyers with poor credit, no credit history, or past financial difficulties, people who might struggle to get approved for a traditional auto loan.
How does ‘buy here pay here’ work?
- No third-party lender: Since the dealer handles financing, there’s no need for a bank or credit union to approve your loan.
- Less strict credit checks: Many BHPH dealers don’t require a credit check (or only perform a soft check). Instead, they focus on your ability to make payments.
- Higher interest rates: Because they take on riskier borrowers, interest rates are often much higher than traditional loans—sometimes 20% or more.
- Strict payment schedules: Some dealers require weekly or bi-weekly payments rather than monthly ones.
- Repossession policies: Since borrowers are higher-risk, BHPH dealers may install GPS trackers or starter interrupt devices to make repossession easier if payments are missed.
Read: Is Buy Here Pay Here Right for You?
Pros of ‘buy here pay here’
Let’s go through the upsides first:
- Accessible for buyers with poor credit: BHPH dealerships don’t typically do credit checks, so even if your credit history is in rough shape—or non-existent—you still have a chance to get a car loan.
- Simplified process: No need to get pre-approved or shop around for financing. You select a car and handle everything at the dealership, sometimes within hours.
- Flexible payment arrangements: While this can also be a downside (more on that in a moment), some BHPH dealers allow you to make smaller, more frequent payments that better match your pay schedule.
- Possible low or no down payment: Some dealers offer deals with little to no money down, which is useful if you don’t have much saved.
Cons of ‘buy here pay here’
Now, for the other side of the coin:
- Higher interest rates: You’re likely to pay more in the long run due to steep interest rates. A 20% rate is not unusual, and that can add up quickly.
- Limited vehicle selection: Often, you’ll only be shown vehicles you’re already pre-approved for based on your income. You won’t have full freedom to choose any car on the lot.
- Risk of repossession: Miss a payment, and some BHPH dealers may repossess your vehicle quickly. They may have installed a GPS tracker or even a remote disabling device to make this easier.
- May not improve your credit: Many BHPH dealerships don’t report on-time payments to credit bureaus. This means that even if you’re keeping up with your loan, it may not help your credit score.
- Frequent payments: Instead of a monthly bill, you might be expected to pay weekly or biweekly. If you forget or miss a payment, the consequences can be severe.
How do ‘buy here pay here’ dealers repossess cars?
Because BHPH dealers lend to high-risk buyers, they often take extra steps to protect themselves:
- GPS tracking: Some install tracking devices to locate the car if payments stop.
- Starter interrupt devices: These can disable the car remotely if you miss payments.
- Aggressive repossession policies: Some dealers repossess after just one missed payment, depending on state laws.
What are the alternatives?
If you’re worried about the risks and costs involved in Buy Here Pay Here financing, there are a few other avenues you might want to explore first:
- Save and buy with cash: It takes longer, but if you can wait and save up, buying with cash means no debt, no interest, and no credit checks.
- Get a cosigner: A family member or trusted friend with a good credit score might help you secure a traditional auto loan by cosigning with you. Just remember: they’re equally responsible if you can’t make payments.
- Try a credit union: Credit unions are often more flexible than banks when it comes to lending to people with less-than-perfect credit. They may offer better interest rates and fewer fees.
- Seek out specialty lenders: Some online lenders specialise in helping borrowers with poor credit. Interest rates will still be high, but you may have more options and greater transparency than at a BHPH lot.
Is buy here pay here a good idea?
Well, it really depends on your situation.
If your credit is poor, you’ve exhausted other options, and you need a vehicle urgently, BHPH might be the only route available. It gets you a car, and it gets you moving. But it’s not a decision to take lightly.
The key is to go in with your eyes open. Understand the loan terms, ask about interest rates and down payments, and make sure you’re clear on repossession policies.
And if your goal is to rebuild your credit, confirm whether your payments will be reported to credit bureaus.
Final Thoughts
Buy Here Pay Here dealerships exist for a reason: they serve people who are often overlooked by traditional lenders. They provide a service, but it comes at a cost, usually a high one.
So, if you’re thinking about going down this route, take a moment to explore all your alternatives. Maybe you can wait a few months and improve your credit score. Maybe a cosigner can help. Maybe a credit union will say yes when a bank says no.
But if you do decide to work with a BHPH dealership, treat it as a short-term solution, not a long-term habit. And most importantly, stay on top of your payments.
That way, you’ll keep your car, keep your freedom, and hopefully move toward a stronger financial future.
Himani Verma is a seasoned content writer and SEO expert, with experience in digital media. She has held various senior writing positions at enterprises like CloudTDMS (Synthetic Data Factory), Barrownz Group, and ATZA. Himani has also been Editorial Writer at Hindustan Time, a leading Indian English language news platform. She excels in content creation, proofreading, and editing, ensuring that every piece is polished and impactful. Her expertise in crafting SEO-friendly content for multiple verticals of businesses, including technology, healthcare, finance, sports, innovation, and more.
