Watch Out for These Signs at a 'Purchase Here, Pay Later' Vehicle Sales Outlet
Buying a vehicle can be a necessity, but it can also be a significant challenge, especially if you have bad credit or are currently without a bank account. While individuals with excellent credit scores can secure a used car loan with an average annual percentage rate (APR) of approximately 6.8% at present, those with a lower credit score may be faced with an APR of almost 19%, or even higher.
Plus, securing a loan can be challenging for these individuals. If traditional financing from a bank or a standard car dealership, which often collaborates with third parties to provide financing, is unattainable, then the final option is a "Buy Here, Pay Here" car dealership. These small dealerships specialize in selling vehicles to individuals who struggle to secure traditional financing and often claim that they do not care about credit scores or conduct credit checks. While the vast majority of Buy Here, Pay Here dealerships are legitimate businesses offering a necessary service to those in need, one must exercise caution to steer clear of any unscrupulous practices.
How does a Buy Here, Pay Here loan function?
A Buy Here, Pay Here car dealership operates much like any other car dealership. You choose a car, and then work out the financing. The main difference is that you borrow the money to purchase the car directly from the dealership itself, allowing them to bypass the credit check and set loan terms as they please (within the boundaries of local laws, of course).
While this arrangement can be a lifesaver for individuals who cannot secure traditional financing, there are disadvantages.
- Limited options: Most Buy Here, Pay Here dealerships first determine how much you can borrow, then present you with a list of cars within that price range. The selection of available vehicles may be disappointingly meager, and the vehicles may be outdated and in poor condition.
- High-interest rates: Interest rates at Buy Here, Pay Here dealerships are remarkably high - typically around 20%, and rising if they are able to do so legally. The exorbitant interest rates also hinder the refinancing of the loan despite improvements in credit.
- Frequent repayments: Some Buy Here, Pay Here dealerships demand weekly loan repayments, which can be a struggle to maintain.
- Insurance: Due to the overpricing of the car (particularly when considering the immense amount of interest), even if you secure full insurance coverage on the car, any settlement in the event of a total loss will likely be insufficient to pay off the loan, leaving you responsible for continuing loan repayments on a vehicle that has been destroyed.
- Large down payments: With a poor credit rating, many Buy Here, Pay Here dealerships require high down payments as a condition of the loan.
If, despite these drawbacks, you decide that a Buy Here, Pay Here dealership is your best option for purchasing a vehicle, exercise caution. While the majority of these car dealers are legitimate (albeit costly), watch out for some questionable tactics.
No loan is excessive
The primary purpose of a Buy Here, Pay Here car dealership is to offer loans to individuals who cannot secure financing elsewhere - but if the dealership promotes itself as offering loans of any size without a credit check, be wary. This is a sign that their business relies more on loan defaults than on selling vehicles or even profiting from interest on loans.
Most lenders have a limit on how much they will lend to individuals - even those with strong credit scores - because they do not wish to make a loan that is unmanageable. However, some deceptive Buy Here, Pay Here places are more than willing to see you default on a loan you cannot afford, as they can seize the down payment, repossess the vehicle, and resell it to someone else - often with a similarly large loan.
Spot delivery
If the salesperson at the Buy Here, Pay Here lot seems unconcerned with finalizing your financing deal and encourages you to simply take the car home while they work out the details, leave. You will inevitably receive a call informing you that there was a problem, and that you must come up with additional funds for the down payment or that the interest rate discussed will be much higher than expected. This practice is known as "spot delivery" and attempts to exploit your belief that you have already purchased the car, resulting in your agreeing to any new terms the dealership proposes.
GPS trackers
Many Buy Here, Pay Here dealerships require GPS trackers in the vehicle until the loan is paid off. While this is generally legal (as long as you give your consent), it raises privacy concerns and suggests, yet again, that their primary focus is on repossessing cars rather than selling them or servicing loans. The presence of the tracker means they expect you to default, and they have streamlined their repossession process to make it more convenient for them. If the dealer insists on this, you should look elsewhere for your vehicle, if possible.
This situation isn't primarily a scheme, but more like a cautionary signal: Buy Here, Pay Here dealerships might deviate from conventional car dealerships regarding the preparation of used cars for resale. These vehicles might display visible signs of wear and tear, as most of these dealers choose not to invest in new upholstery or fixing body damage such as dents and dings. However, if the vehicle's condition is extremely poor, it's advisable to reconsider, even if the price appears reasonable, as it suggests the dealer isn't even carrying out the necessary maintenance to keep the vehicle running smoothly before handing it over to you. Moreover, if they pressurize you to pay extra for a service contract, you're treading dangerously close to dubious practices.
If you're in dire need of a vehicle yet your credit score is too low for traditional car financing, a Buy Here, Pay Here dealership might be an option. But be aware of the high interest rates and unfavorable terms, and be on the lookout for indications that the dealership is being excessively exploitative.
At the Buy Here, Pay Here dealership, you'll find the option to pay for the vehicle and any related expenses directly at the location. It's important to remember that you'll be providing money for both the purchase and the financing.
If you're considering buying a vehicle from a Buy Here, Pay Here dealership, you'll need to have sufficient money for both the down payment and ongoing payments with high interest rates.
