What Is Buy Here, Pay Here (BHPH)?

Buy Here, Pay Here (BHPH) is an auto dealership in which the financing for the vehicles purchased is done in-house. These types of dealerships are typically involved in the sale of heavily-used cars, and they tend to cater to customers with relatively poor credit ratings. Learn more about the pros and cons of BHPH dealers.

How Buy Here, Pay Here Works

Buy Here, Pay Here auto dealers provide in-house financing to buyers with poor credit or no credit. The interest rate on these loans is generally significantly higher than auto loans from a traditional bank or credit union.

The majority of auto dealerships use a third-party provider for financing, such as an affiliate of the manufacturer. Buy Here, Pay Here financing is an exception to this general rule because the dealers provide their own lease financing with no third party.

The benefit of this approach is that the BHPH dealership can receive the interest revenue associated with their leases. However, these dealerships may be more prone to cash flow problems because they take on riskier borrowers who are more likely to default. After all, the borrowers that use BHPH are typically do not qualify for other financing.

The BHPH business can be especially difficult if it is geared toward subprime borrowers. BHPH dealerships have been known to offer flexible terms, such as no down payments, no-interest financing periods, and loans without any preliminary credit check.

Example of Buy Here, Pay Here (BHPH)

Say you have poor or no credit and you cannot qualify for a loan from a bank or a credit union. However, you need a car to get to your work. So, you turn to a Buy Here, Pay Here dealer and find a used car that fits your budget. The auto dealer offers to finance your vehicle, but you will be required to make bi-weekly payments and the interest rate on your loan will be 20%. As part of the deal, you agree to allow the dealer to place a tracking device on the car in case they need to repossess it.

What Are Alternatives to Buy Here, Pay Here Financing?

If you are struggling to get a car because of poor credit, you have several alternatives to using Buy Here, Pay Here financing. First, you can consider delaying car buying until you can save up the cash for it, or at least enough for a deposit that can lower your loan's interest rate. Paying in cash would require no credit check from a lender and you could save money by not paying interest.

Another option if you need to buy a car now with no credit or poor credit is to get a cosigner with healthy credit. You will need a cosigner who is willing to take on the risk of paying for the loan in the event that you cannot.

Finally, even if you have no credit or poor credit, make sure you shop around for a car loan beyond Buy Here, Pay Here dealers. Some financial institutions are willing to lend to borrowers who are considered higher risk. Get several quotes for auto loan rates from credit unions or banks.

The Bottom Line

Buy Here, Pay Here car dealers can provide people with poor credit with a way to purchase a vehicle. However, this financing method is often very expensive. If you need a car and have poor credit, consider all your options, including delaying car buying or getting a cosigner. If determine you want to buy a car from a Buy Here, Pay Here dealer, ensure you fully understand all the terms, including how they may repossess your vehicle.