Why You Should Skip Buy Here, Pay Here Car Lots

Buy here, pay here car lots can sometimes offer financing to those with bad credit. But even if you’re desperate to get an auto loan, you’re probably better off avoiding the temptation of buy here, pay here car dealers, since you’ll often pay more for the vehicle than it’s worth.

What is a buy here, pay here car lot?

Also known as a no-credit-check dealership, buy here, pay here car lots offer in-house financing for auto loans rather than through a lender.

They usually cater to people with no credit history or poor credit. It may be easy to get a loan from these kinds of lots, but the interest rate will be higher than from other lenders, and there may be additional fees and requirements.

Are buy here, pay here car lots bad?

Buy here, pay here dealerships aren’t necessarily “bad,” but you should probably avoid them unless you have no other option. For example, if you have poor credit but need to buy a vehicle for work, this type of car dealership could be a fast way to get one.

Be aware that the vehicles may be overpriced for their condition and mileage, the interest rates will likely be high and you might have to buy a service agreement and GAP insurance as a condition of the loan.

How do buy here, pay here car lots work?

At a buy-here, pay-here car lot, you shop for the car you want and apply for financing, just like at any other used car lot. The difference is that the dealer provides the financing and can charge the maximum annual percentage rate (APR) allowed by law in the state where they do business.

While you won’t have to go through a credit check, the dealer will ask you to show that you can make the loan payments, such as with proof of income and residency information. A dealer may also ask for a large down payment to secure the loan.

Just like with a typical auto loan, if you fall behind on the payments, the dealer can repossess the car. Some dealers even use remote shut-off switches or tracking devices to make it easier to find and seize the car.

In fact, some dealers expect high default rates so that they can repossess many of the vehicles and then resell them.

Alternatives to buy here, pay here car lots

Shop around for a car loan

You may still be able to get a car loan with bad credit. Banks, credit unions and online lenders offer programs for people with less-than-stellar credit scores.

This way, you could get a more reasonable interest rate that will help build your credit history.

Apply for a car loan with a cosigner

You may have a better chance of getting a traditional loan with a cosigner. A cosigner is a person with good credit who also fills out the loan application and commits to paying the loan if you don’t.

However, if you fail to make the payments, both the cosigner’s and your credit scores will be impacted.

Take time to save for a down payment

If possible, save up for a down payment. It may help you qualify for a traditional car loan and reduce the amount of interest you will pay. A larger down payment can make the monthly bill more affordable and allow you to save money in the long run.

Buy from a private seller

A car from a private seller you might find online may be less expensive than a used car lot. You can pay cash or secure financing on your own.

Once you buy the car, there are no strings attached, unlike with a buy here, pay here car lot. The car might also be in better condition than what you would usually find at a dealership.