Buy here pay here: how it works, when it makes sense and what to watch for

How it works

Instead of sending your application to a bank, the dealer is the lender. You make your payments directly to the dealer, often weekly or every two weeks, sometimes in person or online. Approval is often based on your income and your ability to pay rather than mainly your credit score.

When it can make sense

• You were turned down for a loan from banks and credit unions.
• You have limited or damaged credit and need reliable transportation to work.
• The dealer reports your payments to the credit bureaus, so on-time payments can help rebuild your credit.

What it can cost

• A higher interest rate than a bank would charge.
• A higher price than the same car might cost elsewhere.
• A larger required down payment.
• Late fees, and the risk of repossession if you miss payments.
• A device on the car, such as GPS or a starter interrupt, in some cases.

Questions to ask

1. What is the total price, the APR, the term and the total I will pay?
2. What is the down payment, and when is each payment due?
3. Do you report my payments to the credit bureaus?
4. What happens if I am late, and what are the late fees?
5. Is there a device on the car, and when can it be used?
6. Does the car come with any warranty, or is it sold as is?
7. Can I have it inspected by my own mechanic before I buy?

Compare before you commit

Even if your credit is poor, check with a credit union first. Some offer loans for people rebuilding credit at lower costs. If you do use BHPH, shop several dealers, compare the total cost and ask if you can refinance later.

Protect yourself

• Get a pre-purchase inspection and a vehicle history report.
• Keep every receipt for payments.
• Pay on time, and contact the dealer early if you cannot.
• Know your state's rules on repossession and late fees.

Common questions