During the 1970s, inflation was rising along with unemployment. Car dealers were facing difficulties, as their sales were going down. On the other hand, the manufacturing cost was constantly rising, thus making it difficult for people to buy new cars. The economy was transforming from manufacturing-based to service-based, therefore, financing a car was not easy. The banks and other financial institutions used to do thorough checks and didn’t pass a loan without a good credit score. In this article, we will get to know Buy Here Pay Here in detail.
All these factors affected the auto company’s sales figures. They were left with no other option but to enter into the consumer finance business. This led to the concept of Buy-here Pay-here. The car manufacturer company provides loans to consumers who do not have a good credit score.
What Is Buy Here, Pay Here?
Buy-here Pay-here financing is a tool that is provided by car dealers to consumers who find it difficult to get a loan from banks and other financial institutions. The buy-here-pay-here dealers set up their own related finance company (RFC) and then tie-up with other financial institutions.
Having said that, the interest rate on the amount borrowed is higher than what is provided by banks and other lending institutions. The cost of borrowing increases for the buyer. But, the loan provider has a lot of risks involved, and thus, they charge accordingly.
Buy Here, Pay Here Dealership
The dealer earns profit from the sale of the car and, from the interest amount earned from the loan. The percentage of interest is always higher in this case. Therefore, the revenue generation of the dealer is positively impacted. Moreover, when the buyer does not pay the installment or EMI amount the car is taken back into possession. The RFC then sells the car back to the dealer.
The buyers should do their homework before approaching the Buy-here, Pay-here dealer. In this case, the lender controls the rules and regulations and the borrower has to accept the same. The difficulty arises for buyers when they do not read proper terms and conditions. Therefore, the borrower should do proper research before approaching the Buy here, Pay here dealership.
Buy-Here Pay-Here “No Credit Check” Feature
Buy-here Pay-here is popularly known as no credit check auto loan. The dealer that provides no credit check loan is usually specialized in providing auto loans. They provide loans at a much higher interest rate as compared to banks and other lending institutions. However, the in-house finance branch of the car dealer provides auto loans to low credit score holders. Moreover, they can provide loans to buyers who do not even have a credit score.
The credit score is an important deciding tool that is used by the lender. It informs lenders regarding the credit relationship of the borrower. Moreover, it tells the relationship of the borrower with the borrowed money. And as per the information on the credit score, the loan amount and the interest rate are decided.
Also, borrowers should not think that buy here, pay here is the only choice they have. Borrowers have several options available for an auto loan.
Buy Here Pay Here Pros
The biggest advantage of the buy-here-pay-here loan scheme is that you do not need to have a good credit score. Bad or even no credit score holders can also apply for an auto loan.
Along with a no-credit advantage, the loan application procedure of buy-here-pay-here dealers is very easy. In short, it becomes easier to back financing from the dealer, and get the delivery of the car very quickly.
No or Minimal Down Payment
The evolution of the buy-here-pay-here loan scheme started because of a lack of cash with the buyers. In this case, there is no min amount or down payment required.
48-Hours Return Policy
If you purchase from a buy-here-pay-here car lot, you can return the car to the dealer if you are not satisfied with it. The time limit you have is 48-hours. After 48 hours, the dealer will not accept the delivery.
In this case, you can exchange your older car for a newer one. Several pre-owned cars are available with the dealers.
Cars that come in buy-here pay-here lot, are certified after inspection. The inspection is done by experts, and post-certification only the cars are traded.
Buy-Here Pay-Here Cons
Comparatively High-Interest Rates
The interest rates charged by buy-here pay-here are high as compared to other lending institutions. The cost of borrowing is increased when the interest rates are high. You should know that the interest rates charged are approximately four to five percent high, as compared to traditional car dealers.
They Track Your Car
Since the loan is provided to no-credit score holders, for the repayment of the loan the car is continuously tracked by the dealers. Not all but the majority of dealers use tracking devices, it makes it easier for them to take the car into repossession.
The buy here pay here cars are bought as per lots. Therefore, it has a lot of different types and varieties of cars. But you are restricted to only a specific number of cars.
Does Not Affect Your Credit Score
The majority of buy here pay here dealers do not report the authority about your auto loan credit. Also, it does not affect the credit score. Neither negatively, nor positively. Because it does not update any payment in the credit report.
Not all buy here pay here dealerships provide accurate and transparent cost structures. The hidden fees might be present in the agreement. Therefore, while borrowing the funds, read the agreement very carefully.
Odd Payment Dates
The dealers can ask for the payment on any date. The date might not be according to your salary date moreover, it can not be shifted at a later stage. Borrowers need to make sure that the date of payment is as per your choice.
Myths Regarding Buy-Here Pay-Here Sector
Myth: The Dealers Do Not Look At Your Credit Score At All
The buy here pay here dealers do look at the credit score. However, they do not discard the loan file based on the credit score.
Myth: Interest Rates Are Upto 30%
You can expect the interest rate up to 20%, but not in the line of the 30s. If someone quotes a 30% figure just walk away from that dealer. However risky the loan might be, the dealers keep interest rates as per the industry standards. Which is not more than 29%.
These are some of the myths that have to be factored in before approaching the buy here pay here dealership.
Buy-Here Pay-Here Scams
They Do Not Provide Vehicle History
Buyers should always ask for proof from the dealer. The proof includes insurance papers or car registration papers. This will help you in fetching legit information about the car.
Make sure that the sales personnel doesn’t force you into taking a higher credit line. Sometimes the buy-here, pay-here dealers book the car without you officially finalizing it. Then they call you back to negotiate the loan offer to charge you more.
The buy here pay here loan scheme is beneficial for individuals. Those who are in an emergency have the best solution to finance an auto loan. The process for applying for a credit is easy and quick as compared to traditional methods.
Most importantly, individuals with a no-credit score or bad credit score can apply for credit. You should know that the buy here pay here is not the only option, you can end up paying more than the car’s actual worth. The interest charged is higher.
For more finance-related concepts you can have a look at the FinanceShed, and stay tuned for more updates.