Sara Routhier, Managing Editor of Features and Outreach, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming worl...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Nov 25, 2011

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First they entice consumers with advertisements on car windshields saying, “We finance anyone,” and, “Bad credit welcome.”

 

They don’t even ask for a credit check or credit score. It doesn’t matter.

 

The Buy Here Pay Here dealer then collects a down payment and hands keys over to an excited new car owner.

 

Sounds like a dream to those who have bad credit and have struggled to obtain financing for an automobile. But this dream is one that often starts pleasantly, only turn into a dark, horrifying nightmare.

 

Buy here pay here (BHPH) dealers are car dealers who provide both automobiles and financing. This is different from traditional dealers who arrange financing for borrowers by contacting banks and preferred lenders because BHPH dealers actually issue the loans themselves. This allows BHPH dealers to set the interest rates and terms of their loans to their own liking.

 

That usually means exorbitantly high interest rates and requiring weekly or bi-weekly payments as opposed to monthly payments. Often times, those payments can only be made in person as well.

 

BHPH dealers structure their financing in such a way that they hope for default. They prey on those with bad credit, structure loans to have high monthly payments, and require borrowers to deliver checks in person. Then when default does occur, BHPH dealers are usually much quicker than a bank to enact their right to repossession.

 

And the word “prey” isn’t meant as hyperbole.

 

Chuck Bonanno, a BHPH consultant in Florida, said at a dealer’s conference, “Our customer doesn’t have any money. He doesn’t plan for a rainy day,” according to the New York Times.

 

Dealers buy lists of recent bankruptcies, and solicit those on the list with phone calls and junk mail. It’s not hard to imagine how enticing those offers may be to consumers who need a new vehicle when they just filed Chapter 7.

 

They prey on those with little to no money with every intention on reclaiming the vehicle. If a borrower defaults, the BHPH dealer can write that transaction off as a loss when tax time comes, and repossess the car to sell again. It’s a very lucrative business model, but one that must leech off the financially incapable in order to work.

 

Granted, in a capitalistic society, businesses will shut down if there is no demand for their service, and there comes a point when consumers must take responsibility for themselves. But in order for consumers to make prudent, responsible choices, they must be given the information in its entirety. They mustn’t be mislead by rhetoric and steered by charismatic salesmen.

 

Perhaps BHPH contracts should have the features of the loan juxtaposed next to the features of a typical bank-backed auto loan. Until then, buyers should approach banks and credit unions for their car loans. They should shop around and compare prices in order to obtain financing before wandering onto a car lot.