Why You Should Avoid Buy Here Pay Here Car Loans

Maintaining good credit isn't always possible. Medical emergencies, unemployment, and plain old bad luck can send a credit score plummeting almost overnight. Once a credit score is damaged, it is possible to repair it, but often credit is needed long before credit repair is possible. Often, that credit is needed to purchase a large item, like a new or used car.

There are many car dealerships and lenders who specialize in bad credit lending, but quite a few of these lenders are only looking for a way to take advantage of consumers. If you are a car buyer who knows credit will be an issue, do not let worry or desperation get you into trouble.

The Sales Pitch

Quite a few people swear by car lots that promise quick financing and relaxed credit criteria. These car lots seem like miracles since they usually "guarantee" financing to anyone. When looking for a car loan, or any type of loan, always avoid anyone that is willing to guarantee a loan. Remember, if it sounds too good to be true, run fast and far.

Buy here pay here car lots get their names by the practice of making car buyers bring, or mail, payments directly to the car lot. Most buy here pay here car lots will advertise low down payment specials. A few dealerships have advertised $35.00 down payments. Still others claim "your job is your credit", and if you are self-employed or unemployed they will find some way to accommodate you.

Financing Bait and Switch

The majority of buy here pay here car dealerships offer "in house financing", meaning you will not have to wait to have an outside bank approve a loan. This might seem like a bonus for someone who is tired of being turned down by banks, but the financing terms usually include unusual fees and outrages interest rates. The average buyer misses these extra charges because the car sales staff and finance team gets them to focus on the monthly payment amount.

Some buy here pay here car dealerships allow, or encourage, bi-weekly car payments making them seem like an affordable alternative to one monthly payment. Buyers who focus on a smaller number do not always realize how much they are paying each month for a used vehicle. Not until the ink on the contract is dry and the car is off the lot does an unwary buyer realize they are paying far more than the car is worth. Worst, some buy here pay here car loans are negotiated in such a way that two years will pass before the principle of the loan begins to noticeably decrease.

From Bad to Worse

Everyone has experienced an occasional late payment, and most creditors are willing to work with anyone who takes the time to call and discuss their problem. Unfortunately, buy here pay here car loans are not managed by that type of creditor. If a payment is even one day late collection activity begins.

Since the car lot is the original creditor they are allowed to call as many times per day as local law allows. This means the car lot can call three times a day or more, while also calling every reference you were asked to provide on the loan application. If car payments are more than a few days late buy here pay here car lenders have been known to send employees to the buyers home or job with letters demanding payment.

Worse, the late payment will be reported as soon as it becomes 30 days past due, making an already shaky credit score drop a little lower. If the car payment is more than a month past due the car will be reposed and probably resold, while the dealership continues to pursue payment.

What You Should Do

There are ways to avoid a buy here pay here disaster. The most obvious, and not always immediately possible, is to do what you can to clean up your credit. Of course, not everyone can afford to pay off large debts and start repairing their credit while trying to purchase a car. Instead, consider using the down payment you were saving to buy a cheap used car on Craigslist.org or AutoTrader.com. This way, you will not have to worry about a monthly payment, and you will still have transportation while you begin to work on fixing your credit score.