When credit is tight, it may be difficult for automobile buyers with bad credit to purchase a car unless they can come up with the entire cost of the car in cash. Banks, credit unions, and auto finance companies have incurred huge losses during the recession and will often reject those with low FICO credit scores and bad credit.
However, there is one type of used car dealer that specializes in getting financing to those with bad credit. They are known as buy here, pay here car lots. Since most banks will not underwrite a bad credit auto loan, these dealers have to do the financing in-house. These dealerships take special measures to make sure their high-risk borrowers pay back their loan.
The easiest way to find a buy here pay here car lot is to go to the part of town where there are many used car lots. They will have big banners that say, "Buy Here, Pay Here." Used car dealers with those signs will welcome those with bad credit with open arms.
Buy Here Pay Here Auto Finance With Bad Credit
What normally happens when a person goes in to get a buy here, pay here car loan is that the dealership will run a credit check. They are usually checking to make sure that the buyer is current on debt payments.
The buyer's income information will be used to determine if he has enough income for repayment. Keep in mind that buy here, pay here dealerships are usually much more forgiving with respect to late payments in the past. Once the dealership knows how much the buyer can afford, the salesperson will direct the buyer to cars that he can afford.
The customer then picks out the desired used car.
Buy Here Pay Here Car Loan Interest and Fees
The dealership finances the car loan. The interest rate will be very high. Payments often have to be made directly to the used car dealership. This may be a inconvenience to some buyers which could lead to late auto loan payments, which have very high fees for a missed car payment.
Besides the high interest rates on buy here, pay here loans, dealers will repossess the car much faster than a normal bank or credit union. With traditional auto financing from a bank or finance company, it may be a month after the due date before they decide to repossess your car even though they have a right to take the car the day after it is late.
With buy here, pay here car financing, the dealership will often exercise the right to repossess the car the day after payment is due. The reason is that they can get large fees from charges relating the the towing and repossession of the car. This also encourages borrowers to pay monthly payment to the dealer on time.
Those who have bad credit and need a car should try to raise the cash to buy the car without an auto loan. However, a buy here, pay here dealership may be good for short term financing where the borrower intends to pay back the bad credit auto loan as quickly as possible to minimize the high interest expense. Another loan option to consider that's viable to those with bad credit is a pawn shop loan. However, buy here pay here car lots are often the only place that will lend to those with bad credit or financial difficulties.
Resource:
- Autotrader.com. "Buy Here Pay Here Financing Basics." (Accessed December 12, 2010.)
