The Devastating Nature of a ‘Buy Here, Pay Here’ Lot You Might Not Know

Car buying can be stressful, particularly if you have a bad credit score. Navigating financing while shopping for a car you desperately need can be disheartening if you can’t get approved due to your credit rating. You might think a corner car sales lot that has bright signs and balloons that scream “no money down!” or “no credit? no problem!” is your best and only option. These lots are known as “buy here, pay here” dealerships, come with a huge catch, and are not your only option.

How does a ‘buy here, pay here’ lot work?

A picture of a used car lot similar to a buy here pay here with numerous cars of various colors in front of a small white building with a blue overhang that says "used cars" with a sticker in a blacked out window that says "We're Dealing."
Used Car Lot | Getty Images

The general premise of the “buy here, pay here” lot is that you actually make your monthly payment to the dealership instead of getting a loan through an outside bank. These dealerships don’t check your credit, which means just about anyone can get financing from them. They generally have a wide variety of vehicles and prices. While this might seem like a great choice if you have a bad credit history, there are some significant downfalls.

Why they are not your best choice

There are quite a few reasons why this type of dealership is not a good place to get a car. For starters, they generally do not sell any new cars and inflate pricing on the used cars sold. Additionally, you will likely have to take on an extremely high-interest rate in the 20% to 25% range instead of 2.9% to 15% through a bank. This means that you pay significantly more over time than if you had bought the car somewhere else with financing through a bank, and the payment plans are made by the dealership and can be very inconvenient scheduling.

It will probably not help build your credit either, as the dealerships might not report your payments to any credit bureaus. However, they will report any missed payments. According to RoadLoans, these dealerships usually install some type of tracking device on the car or a device that prevents the car from starting in case you default on the loan. This allows them to locate your car easily and repossess it if you miss a payment.

Other options for financing

If your credit score is not so great, you still have options for financing a car instead of using a “buy here, pay here” dealership. In addition to simply saving your pennies until you can afford a car, which is admittedly difficult for many people, you can shop around at different banks before heading down to the dealership. Some lenders are willing to work with people who don’t have great credit, and credit unions are often more willing to work with people to get financing.

The other thing you can do is find a trusted family member or friend who is willing to co-sign on your loan. Be careful with this option. If you default on the loan, they will be on the hook, and it will hurt their credit score as well as yours. This can lead to burned bridges and fractured relationships with people you truly love and care about.

And if you already have a loan with a “buy here, pay here” dealership, there are ways to get out of it. According to Rategenius, you can try to refinance the loan through a different bank or credit union. This may end up not panning out, but it never hurts to check with different lenders. You can also list the car on a car sales site, sell the car, and use the money to pay off the loan. It’s important to know what you can sell the car for and the loan payoff amount. The last thing you want to do is wind up selling your car and still having to make payments on the loan. 

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