Shopping for a car can be a rewarding experience—liberating yourself from bus schedules, carpooling, and help from friends and family to get around. For consumers with poor credit, who are denied workable loans from new car dealerships, Buy-Here Pay-Here dealerships’ retail installment contracts may be a saving grace.
The goal of this Money Chat is to help you understand what a Buy-Here, Pay-Here contract is, how they differ from standard auto loans/contracts, and how they can help you improve your credit score moving forward.
What Is A Buy-Here, Pay-Here Contract?
Buy-Here, Pay-Here (BHPH) contracts are contracts issued from BHPH dealerships. In a “normal” car buying experience, a customer would pay a large sum of money upfront for a new car—a deposit—and the dealership will pass your information to a network of potential third-party lenders. If you’re approved for a car loan or contract, you make monthly payments to the lender that finances the terms of the contract.
At a BHPH dealership, not only are the deposits lower but the vehicle sold by the dealership directly with no third parties involved. These contracts often come with no credit checks, or the dealers are more lenient on credit requirements.
How BHPH Dealers Fit Into The Credit Spectrum
BHPH dealers and contracts hold a special place in the credit spectrum. Due to many misunderstandings and naturally hidden processes that affect consumer credit, many consumers cannot take out a contract with a “normal” dealership. With high deposits and interest rates for those with poor credit, BHPH dealerships fill the need of supplying those working toward a healthier financial standing.
However, typically BHPH dealerships only deal in used, older cars. While some may offer newer models, BHPH dealerships rely on an influx of used vehicles that require smaller deposits and smaller financing agreements.
Auto Contract Factors
Before hopping on the bus or asking for a ride to your local BHPH dealership, it is important to understand how auto contracts are considered. In 2022, the average five-year contract/loan on a new vehicle is expected to rise to 4.4% interest. That number, while seemingly low, is only reserved for those with a very good or exceptional credit score—740-850. The National Alliance of BHPH Dealerships (NABD) found that in 2019, those with subprime credit—under 640—averaged a nearly 15% interest rate.
BHPH Dealerships, while averaging close to a 20% interest rate, have the added benefit of not checking their customer’s credit score, but potentially reporting the contract to credit bureaus, and securing the contract without the need for extensive background checks. These benefits allow even those struggling to improve their credit score the opportunity to have a vehicle that can get them to their job, children’s school, or even to interview for a better opportunity.
Avoiding Predatory Contracts
BHPH dealerships provide a helpful service to those actively looking to improve their credit history. However, the industry can be plagued by some “bad apples.” NABD has worked closely with dealerships across the country to create a compliant, transparent, and trustworthy environment for BHPH lending.
Before exploring BHPH contracts and options, make sure you are ready for the financial responsibility required to make payments on your new vehicle. While BHPH dealerships may choose to not report your contract agreement to credit bureaus, should you default on your contract—miss a payment—many third-party collection agencies may report your unpaid debt under the Fair Debt Collection Practices Act (FDCPA).
BHPH dealerships and contracts offer a unique solution to those who require subprime contracts to get a car. By having a means of transportation and securing your own schedule, many consumers across the country are able to later renegotiate their accounts and fix their credit scores.
If you want to learn more about financial literacy or your rights as a consumer, please visit the Receivables Info Resources Page.
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The information contained in this article is meant to serve as general guidance for consumers and not meant to serve as comprehensive financial advice. For questions about your individual circumstance, finances, or accounts, please contact your creditor(s) and/or financial advisor directly.
Thank you to our Sponsor
Arrow Acceptance is a top company that buys buy here pay here notes with purchase programs specifically designed for Buy Here Pay Here businesses. Their process is fast and simple to help BHPH businesses sell auto contracts for cash in one large lump sum. Arrow’s goal is to provide a streamlined purchase process with high-quality support that builds positive long-term relationships with clients and their customers. Arrow Acceptance is headquartered in Marietta, Georgia.