When you buy a car at a conventional dealership, the financing comes from a third party like a bank or credit union. But at a buy here pay here dealerships (BHPH), the financing is set up directly through the dealer itself. This is also known as in-house financing. It can seem tempting for buyers with bad credit to take advantage of this type of financing. But you should be aware of the risks before you sign up.
Is hire purchase just for cars?
BHPH dealers aren’t subject to the same laws as traditional lenders. They can charge high interest rates—up to the maximum allowed in your state—and may sell vehicles for more than their market value. They can also require buyers to make payments on a weekly or bi-weekly basis instead of the traditional monthly schedule.
Some BHPH dealers may report your on-time payments to the credit bureaus, which could help you build or repair your credit score. But it’s important to ask the dealer whether or not they do this before you agree to a BHPH loan.
Another concern with a buy here pay here dealership is that they may repossess your vehicle without warning if you’re behind on your payments. They may even install tracking devices or shut-off switches to prevent you from starting and driving away the vehicle after it’s repossessed. If you want to avoid this, it’s best to work with a lender that reports your payment history to the credit bureaus.