Buy here pay here lots

At a buy here pay here lot, the dealer sells you the car and lends you the money too. There is no outside bank. That is why these lots can say yes when banks say no, and it is also why the deal can cost so much. If your credit is rough, it helps to know how these loans work before you sign one.

How they work

Approval is often based on your income and job more than your credit score. Payments are often due weekly or every two weeks, sometimes in person at the lot. The cars tend to be older, with higher miles, and many are sold as is. On any used car from a dealer, the Buyers Guide sticker in the window says whether it comes with a warranty or is sold as is.

What it can cost

Interest rates at these lots are often far higher than at a bank or credit union, and the price of the car can be high for what it is. Put together, you can end up paying much more than the car is worth.

Tracking devices and starter shutoff

Many of these lenders put devices in the car. A starter interrupt device can stop the car from starting if a payment is late. A GPS tracker shows where the car is, which makes it easy to find for repossession. Rules on how and when these can be used depend on your state. Before you sign, ask whether the car has either one, and get in writing how many days late a payment can be before the car is shut off, and whether you get a warning first.

Repossession

Miss a payment and the car can be gone fast. The FTC explains that in many states a lender can take the car as soon as you are in default, without going to court and without warning you first, as long as it does not breach the peace. Your contract says what counts as default.

After a repossession the lender usually sells the car. If it sells for less than you owe, plus the costs of taking and selling it, you can still owe the difference. Your belongings inside the car are still yours, so ask for them back right away. A repossession also hurts your credit for years.

One more thing to ask: whether the lot reports your payments to the credit bureaus. Some do not, which means paying on time may do nothing to build your credit.

What to try first

• A credit union. Some make car loans to members who are rebuilding credit, often at lower rates than a buy here pay here lot.
• Your own bank, especially if you have had an account there for years.
• A cheaper car and a bigger down payment. A smaller loan is easier to get approved and to pay off.
• Paying cash for a cheap, sound car while you rebuild your credit, then borrowing later on better terms.
• Fixing your credit report. An error can be the reason for a no. The lesson on credit and rates shows how to check.
• A cosigner, with care. The FTC points out that a cosigner is on the hook for the whole debt if you do not pay. Only ask someone who understands that.

If you still go this way

• Have a mechanic you trust look the car over before you sign anything.
• Ask for the price, APR, term, payment schedule and total of payments in writing.
• Ask about tracking devices, late fees, grace periods and what counts as default.
• Pay the same way every time, and keep every receipt.

What to do next

1. Pull your credit reports and fix any errors.
2. Ask a credit union and your bank for a loan offer before you visit a buy here pay here lot.
3. Save toward a bigger down payment, or a cheap car you can pay cash for.
4. If you do sign, get the total cost and the rules on late payments and devices in writing.
5. Check the car’s owner complaints and recalls on WhipWorthy, and have a mechanic look at it.

Sources

• FTC consumer advice: Vehicle repossession (opens in a new tab)
• FTC consumer advice: Buying a used car from a dealer (opens in a new tab)
• FTC consumer advice: Cosigning a loan (opens in a new tab)
• Consumer Financial Protection Bureau: Auto loans (opens in a new tab)
• MyCreditUnion.gov, from the National Credit Union Administration (opens in a new tab)