Buy here, pay here car lots by definition provide in house financing for cars, trucks, sport utility vehicles and in some cases motorcycles. “In house financing” means that the dealer acts as the finance company and a legal finance contract is made between you (the buyer) and the dealer (the lien holder). The dealer will hold the title to the vehicle until all payments are made.
It’s important to note that using buy here pay here financing is a very expensive road to go down. If you have exhausted all other bad credit car loan options, it may be a necessity for your individual circumstances. While I strongly advocate that anyone with bad credit try to get approved through special finance programs first, this article should serve as a good reference for those that have no other choice.
Welcome to The Twilight Zone of Buying a Used Car
Aside from the required documentation (proof of income, residence, etc.), buying a car from a buy here pay here requires some good detective skills. You’re walking into the twilight zone of used cars. High mileage second hand and third hand cars can have questionable histories. It’s not uncommon to find a vehicle for sale at a used car lot that has been totally rebuilt after a major collision, or that has previous flood damage.
How to Tips for Buying a Car from a Buy Here, Pay Here Car Lot
Tip #1. Ask where the car came from. If the dealer gives you any runaround about the origin of the vehicle, you may want to shop elsewhere. Ask for a CarFax report on the vehicle. The dealer should have no problem providing this to you.
RED FLAG – If the lot has a back yard full of “car pieces” or junk cars, this can be an indication that the dealer is selling rebuilt salvage vehicles.
Tip #2. Take the vehicle to an independent mechanic. Once you find a vehicle that you’re interested in, tell the dealer that you want to have the vehicle thoroughly inspected by your mechanic before you talk numbers. Any reputable dealer will be glad to have you do so. Make sure that the mechanic is totally independent and unbiased.
Tip #3. Check the book value for yourself. This is easy to do at NADA.com or KBB.com. The highest retail price is not what you should be paying. You should be paying no more than clean retail book value. Buy here, pay here car lots as a whole have an industry reputation of sale prices that exceed retail. This is because they are “the bank” and can determine the vehicles loan value, usually in their favor (above retail).
RED FLAG – Make sure that your down payment doesn’t disappear into thin air. It can be that the down payment is not subtracted from the sale price. In this scenario, your down payment is nothing but added profit and does you no good. Make sure your down payment is subtracted from the fair sale price of the vehicle.
Tip #4. Get short term financing. You don’t want to have negative equity in the vehicle you’re buying, although at a buy here, pay here it’s pretty much unavoidable at first. It’s common that in order to offer you lower payments, the dealer will increase the number of car payments. Don’t get fooled into this kind of deal. Always ask for the total of payments.
Tip #5. Shop buy here, pay here interest rates. Despite some of the pressure tactics that dealers will try to put on you, such as “this deal is only good for today”, or “I have a customer coming this afternoon that wants this same vehicle”, take your time. Call up dealers and ask them what their interest rate is. They’ll probably not give you a straight answer, lol. Still, you can ask them what their maximum interest rate is. They’ll probably tell you the state cap (maximum rate allowable in your state). Prepare for sticker shock on that one.
Tip #6. Ask for references. They’ll probably ask you for references, too! Even so, they are a business and are in business with the public. They should have no problem giving you a list of at least 5 customer references. If you feel the references are biased (such as the dealers kids), ask your friends if they know anyone that has purchased/financed a vehicle from that particular buy here pay here. See what they have to say and if it doesn’t give you confidence to buy from that dealer, keep looking.
Tip #7. Pay cash. You are better off using your down payment money (buy here, pay here dealers require down payments) to buy a cheap car that will get you from point A to point B, than to get caught up in a high interest rate, high priced auto loan from a buy here, pay here car dealership. Save the money you would be spending on car payments, and move forward with repairing your credit and saving for something better. Sure, you may have a mechanical repair to deal with here and there with a cheap used car, but you’re still keeping more money in your pocket.
Requirements for Buying a Car at a Buy Here Pay Here Car Lot
Down Payment. Buy here, pay here car lots require down payments instead of a credit check in most cases. Typically, the down payment is based on the sale price of the car, and as referenced above make sure that the down payment amount is deducted from the fair sale price of the car.
Proof of income. You’ll need to provide your last two W-2’s that show your year to date income. They’ll take the total you’ve earned for the year and divide it by the number of weeks so far in the year. This will show your average weekly income. If you get paid weekly, you’ll have weekly payments. If you get paid biweekly, you’ll have biweekly payments and so on. This can vary from dealer to dealer. Keep in mind that if you have weekly payments, if you miss two weeks you are “two payments behind”. That’s usually enough for a buy here pay here to begin the collection process (REPO). You’re better off with monthly payments because of this.
Proof of Residence. Where do you live? The dealer is going to want to know where their “collateral” is garaged at, in case of repossession. You’ll need to have one or two utility bills in your name with your physical address that have been postmarked and received in the mail. Some buy here pay here dealers will require a copy of your rental agreement or mortgage contract.
Proof of Citizenship. A social security card (original – no copies) are frequently required depending on your state as a result of Homeland Security laws that are now in effect. If this is not available, a certified copy of your U.S. birth certificate may be required. This varies depending on your state laws and individual buy here, pay here dealer.
Valid Driver’s License. You have to be a legal driver in order to drive off the lot. Don’t try any hanky panky on this one (trying to pass off a state id card for a driver’s license). It won’t work. They’ll also be looking for your license to be issued in the state that you’re buying the car and your address to match.
Full Coverage Auto Insurance. You can’t carry liability on a vehicle that has a lien on it. If you don’t have current auto insurance, that’s OK. You can purchase it when you sign your finance contract and a binder can be faxed to the dealer. They may want to speak with your agent or insurance company on the phone to confirm.
The Title to Your Trade-In. If you’re trading a vehicle you’ll need to bring either the title to the vehicle or information about the loan company/lien holder so that your current payoff amount can be verified. Some buy here, pay here dealers won’t accept a trade if there is a large payoff amount.
Proof of Bankruptcy Discharge. If you have been involved with a bankruptcy, any buy here pay here car lot is going to ask for a copy of your discharge papers. In some cases, if you have an official letter from the bankruptcy court allowing you to incur debt this will also be required.
A Word to the Wise: Buying a car from a buy here, pay here car lot should be avoided if at all possible. There are many sources online that share the same sentiments in regard to this form of auto financing, including CNN among others. It’s expensive upfront (down payment) and it’s expensive over the long term (high interest rates). The vehicle that you purchase will most likely have high mileage and a questionable history at best. Even so, many people buy cars from buy here pay here car lots everyday.
In many cases, people buy cars from buy here pay here car lots not knowing that there are good sub prime companies that can provide you with the ability to get approved for an auto loan. Using special finance programs may be offered with little to no money down and much better interest rates than a dealer that offers in house financing can offer.
