Buy Here Pay Here Financing: Is It The Right Choice For You?
Buy Here Pay Here Financing: Is It The Right Choice For You?
Posted on July 7, 2023
When it comes to automobile financing options, buy here pay here (BHPH) financing has gained popularity in recent years.
This article aims to provide an overview of buy here pay here financing, its workings, and its pros and cons specifically in the context of Canada.
While it may seem enticing at first glance, it is essential to evaluate this option carefully before making any financial commitments.
What is Buy Here Pay Here Financing?
Buy here pay here financing is in-house financing typically offered by used car dealerships.
Unlike traditional financing methods, where you secure a loan from a bank or credit union, BHPH dealerships act as both the car seller and the lender.
They effectively eliminate the need for third-party financial institutions and directly finance vehicle purchases for their customers.
How Does Buy Here Pay Here Financing Work?
In buy here pay here financing, the process is simplified to make it accessible to individuals with poor or no credit history. Here's how it generally works:
1. Vehicle Selection: Customers choose a car from the dealership's inventory.
2. Credit Check: Unlike traditional lenders, BHPH dealerships typically prioritize other factors such as income and employment stability over credit scores. They may not even run a credit check in some cases.
3. Down Payment: The customer pays a down payment, which is typically higher than what is required by traditional lenders.
4. Financing Agreement: The dealership offers a financing agreement outlining the loan term, interest rate, and payment schedule.
5. Payments: Customers make regular payments, usually weekly or bi-weekly, directly to the dealership. Late or missed payments can result in vehicle repossession.
Pros of Buy Here Pay Here Financing
Accessibility: BHPH financing provides an opportunity for individuals with poor credit or no credit history to secure a vehicle loan when other options might be limited.
Simplified Process: The BHPH financing process is typically quicker and less bureaucratic compared to traditional lenders, making it a convenient option for those in urgent need of a vehicle.
No Third-Party Involvement: With BHPH financing, customers can avoid dealing with banks, credit unions, or other financial institutions, simplifying the overall process.
Cons of Buy Here Pay Here Financing
High Interest Rates: BHPH financing often comes with significantly higher interest rates (up to 30% in some cases!) compared to traditional loans. This can result in significantly higher overall costs for the vehicle.
Limited Vehicle Choices: BHPH dealerships usually have a smaller selection of vehicles, and customers may be limited to older or less desirable models.
Strict Payment Terms: BHPH financing requires frequent payments, often on a weekly or bi-weekly basis. Missing payments can result in vehicle repossession, potentially exacerbating financial difficulties.
Lack of Credit Building: Unlike traditional lenders or dealerships, BHPH financing may not report payment history to credit bureaus, limiting opportunities to improve credit scores.
Is BHPH a Good Idea?
While buy here pay here financing may seem like an attractive option for individuals facing credit challenges, it is essential to consider its downsides.
The high interest rates, limited vehicle choices, strict payment terms, and the potential lack of credit-building opportunities make BHPH financing a risky choice.
Instead, individuals in need of vehicle financing are encouraged to explore alternative options, such as credit unions or specialized lending companies, to secure more favorable terms and potentially build a stronger credit history.
At Northway Ford, we offer auto financing and will work hard to get you approved regardless of your credit score. Plus, our car loans help you build credit at the same time. We'd love to help you get on the road! Click here to get pre-approved online for free today.