Can a Buy Here Pay Here Dealership Hurt My Credit?

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Content Manager

Bethany Hickey is a Content Manager and Writer for Auto Credit Express, CarsDirect, and many other automotive blogs. She's a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. 

, Content Manager - April 21, 2020

Simply buying a car from a buy here pay here (BHPH) dealership doesn’t hurt your credit, but it may not help your credit, either. We discuss the pros and cons of buying a vehicle at a BHPH lot, and other options to explore when you’re looking for a bad credit auto loan.

What Is a Buy Here Pay Here Dealership?

BHPH dealerships are known for their no credit check car loans, since they don’t typically use credit scores for loan approvals. They’re also called tote the note dealers. For those with less than perfect credit, these dealerships can be a saving grace when you really need a vehicle.

Even with rock-bottom credit, if you can prove you have enough income to afford the payments, you’re likely to get approved at a BHPH dealer. Keep in mind, you’re probably going to need a down payment, as well. A steady income and a down payment are the two biggest things BHPH dealerships use to determine your eligibility.

These dealers also differ from traditional dealerships in that they finance in-house, which means that they’re also the lender. So, you get approved for financing and buy the car at the same location. It can be a quick, one-stop shopping experience if you come prepared.

Comparatively, a traditional dealer typically uses third-party lenders for their customers – or borrowers can get financing from their own credit union or bank. With a BHPH dealership, financing and delivery are done with the dealer.

While the thought of getting approved for an auto loan regardless of your credit situation is certainly tempting, there are some downsides to in-house financing. If you find yourself struggling to manage a car loan from a BHPH dealership, it could hurt your credit. Here’s how.

A BHPH Dealer May Not Help Your Credit

BHPH lots don’t usually report auto loans to the credit bureaus. What this means for you as a borrower is that your credit score isn’t likely to improve even with perfect, timely car payments.

However, these dealerships typically report any missed/late payments, which hurts your credit. A missed or late payment can remain on your credit reports for up to seven years.

Additionally, if you’re considering buying a car from a BHPH dealer, you may end up paying more for the vehicle than it's worth. These dealerships only sell used cars, and typically offer higher than average interest rates on their loans.

It’s common for used vehicles to have higher interest rates than new cars. According to Experian, the average interest rate at independent used car dealers (which includes BHPH dealers) was 12.61% for people with credit scores of 600 to 660, 18.47% for borrowers with scores of 500 to 600, and 20.69% for those with credit scores below 500 in the fourth quarter of 2019. Meanwhile, the average loan term was right around 60 months, or five years. The higher the interest rate and the longer the loan term, the more you pay in interest charges.

Another thing to consider with a BHPH dealership is that although they don’t usually check your credit or report your on-time payments to the credit reporting bureaus, they do report repossessions.

A Repossession Hurts Your Credit

If you default on a loan and have your car repossessed, this means additional damage to your credit. Not only can a repossession remain on your credit reports for up to seven years, it also means paying extra fees, on top of the deficiency balance, to the dealer.

When your vehicle is repossessed, the BHPH dealership hires a recovery company to tow it back to the dealer where, once it’s inspected, it’s resold.

But because the car is probably worth less than the loan balance, you’re responsible for covering this difference, called the deficiency balance. You're also responsible for paying any fees charged by the recovery company for towing the vehicle.

If the towing fees and deficiency balance aren’t paid quickly, the account is usually sent to collections, which is another hit on your credit reports. A default on an auto loan can happen easily if you have a high interest rate, since it means a larger monthly payment.

And while most BHPH dealerships will work with you if you have a default, repossession, and accounts in collections, these entries hurt your credit and affect your ability to get another car loan from any place other than a BHPH dealer.

This is because subprime lenders are often hesitant to lend to borrowers with a repossession that’s less than one year old. So, if your vehicle is repossessed, you may not be able to get another car anytime soon from a subprime auto lender – and certainly not from a traditional lender.

Other Bad Credit Car Loan Options

Buying a car with a BHPH dealership may work for you if you need one right away, and your credit score is stopping you from getting approved. However, a BHPH dealer isn’t your only option when your credit score is poor – there are also subprime lenders. These lenders work through a dealership’s special finance department that’s there to help finance bad credit borrowers.

Subprime lenders look at your credit score during the approval process, but they also use your ability to pay and your overall stability. They can also help borrowers with unique credit situations, such as a lower credit score due to a bankruptcy or divorce. Additionally, subprime lenders report auto loans and on-time payments to the credit reporting agencies, which means you can improve your credit score with the loan.

While finding a dealer that works with subprime lenders can be difficult, we can help with that. At CarsDirect, we’re connected to dealerships all over the country with special finance departments. To find a dealer near you that works with bad credit lenders, simply fill out our car loan request form. It's completely free, secure, and we’ll get right to work.

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, Content Manager

Bethany Hickey is a Content Manager and Writer for Auto Credit Express, CarsDirect, and many other automotive blogs. She's a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. 

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