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Owning a car can be a significant endeavor in many people’s lives. The problem is that vehicles are expensive, and many people have difficulty buying them. Buy here, pay here lots are one popular option for used car buyers. However, a BHPH dealership can also have some pretty significant drawbacks that might make you think twice.

How buy here, pay here car lots work

Buy here, pay here car lots can seem like a great idea to drivers with various financial situations. In particular, they are sometimes common for used car buyers with bad credit. BHPH lots functionally differently from other car dealerships because they are also the bank for the car loan. Typically, a car dealer will work with outside lenders to finance the purchase of a vehicle.

BHPH is an option for used car buyers
A car dealership | Photo by Michelle Gustafson for The Washington Post via Getty Images

Since buy here, pay here lots also function as the bank, these places have much more freedom in approving customers, whereas traditional banks have much stricter requirements. In fact, BHPH dealerships often advertise their no-credit-check loans. This is because they typically use an income verification system rather than traditional credit checks.

The use of these types of dealerships is decently popular. According to Experian, BHPH dealerships made up about 13% of used car sales in 2020. Though pretty far off from the number of loans from banks and other financing companies, it shows that what buy here, pay here lots have to offer can be pretty attractive.

The problem with BHPH car lots

There are many reasons why buy here, pay here car lots can be a reasonable idea for used car buyers. However, the easy loan approvals also come with some pretty stiff penalties. Perhaps the most egregious would be the interest rates. BHPH dealerships often charge the maximum interest rate allowed by the state in question. 

These dealerships typically have interest rates in the 20% range. This is much higher than the average used car loan. According to Nerd Wallet, the average for used car loan interest rate was around 11.93% at the end of 2023. 

Interest rates aren’t the only problem with buy here, pay here car lots. Traditional dealerships and financing companies usually limit the loan based on the value of the vehicle. However, this is not the case for BHPH lots. They often charge buyers more for the car than it’s worth. So, with the cost of the cars and the higher interest rates, these types of car lots should perhaps be a last resort. 

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