The sales volume of vehicles from car dealers that offer “in house financing” now accounts will nearly double this year in comparison to sales from a decade ago, even as the total unit volume of car purchases in the US has declined. The reason for this uptick is twofold: the national consumer credit score average has decreased as a result of the economy, and traditional creditors have become less likely to approve people for loans and financing.
As most of us are aware, car dealerships do not typically hand out auto loans or approve their customers for financing directly. Instead, they work closely with the captive auto finance companies associated with their sales brand, such as GMAC or Ford Auto Credit, or their auto finance manager helps credit applicants get a loan through a range of preferred offsite lenders, such as banks, credit unions, and automotive finance companies. For today’s car buyer who is more likely to be entering the shopping process with a credit score damaged by job loss, unpaid bills, or even bankruptcy, this conventional means of securing financing can be frustrating, challenging, and altogether limiting. After all, these lending institutions are protecting their credit risk, as bad investments have made life harder for everyone. And that means they are less inclined to be receptive to people with high risk credit. This means getting approved for financing can be a real hitch for the person with imperfect credit who has his or her new car all picked out, the options chosen, the down payment ready, and everything ready to go expect their credit approval.
Dealers who approve financing in-house, often referred to as Buy Here Pay Here car dealerships, do things differently. They can extend credit right on site. They often disregard a person’s actual credit score, focusing instead on their ability to pay. This means examining a customer’s income, job stability, and the amount of existing debt payments they have already undertaken. If the person can show proof of income and ability to make payments, then they have a very good chance at being approved.
There are, however, some very real disadvantages to BHPH car lots. It is advisable that you research these before deciding whether to opt for this method of financing. In essence, buying a car in this way will be more expensive. That is the price you pay for financing a car with poor credit. Car prices could be higher, reliability lower, and interest rates will most certainly be higher than any traditional form of financing.