What is Buy Here Pay Here?

Most of us don’t always get it right the first time, especially when it comes to getting an auto loan. For those with less-than-stellar credit, less information or education about auto loans, or both, a “buy here pay here” (BHPH) auto loan might have been an attractive option when purchasing your car. But, what is BHPH? Even for consumers with a different loan type, this term may be unfamiliar or only partially understood.

Buy Here Pay Here: The Rundown

Essentially, BHPH loans are those that are arranged and controlled by the dealership where the car was purchased. “We Finance” or “Financing Available” signs on dealerships is usually code for a BHPH loan. Though they get a bad rap, BHPH loans are not necessarily bad. In fact, for many people, they are the best, if only, option for a securing an auto loan. However, they should probably not be everyone’s go-to when looking for a car and loan.

Rates

BHPH loans are easy to obtain. Because the dealership wants to make the sale, approval rates are high and lending standards can be more loose than other institutions. But, because the approval standards are less rigorous, this also comes with a bigger price tag in terms of interest rates. BHPH loans are notorious for having higher-than-average rates.

Options

Moreover, BHPH dealerships may make loan qualification the first step, leaving the vehicle selection process guided by the loan offer – which isn’t necessarily negative. We always advise that buyers shop for their loan prior to choosing their vehicle. In the case of BHPH though, buyers are limited to the selection at that particular dealership rather than any make or model within the terms of their loan.

Terms and Conditions

For customers that find the right car for them with BHPH loans, they may encounter unusual terms and conditions with their loan. Some BHPH dealerships ask that each payment be made physically to the dealership. Others may tack on hidden fees or steep late charges. Others may offer a warranty, but with high deductibles or other stipulations. So, when agreeing to any loan, especially BHPH, it is extremely important that consumers read and understand the fine print so that there are no surprises about what is (or isn’t) included.

Bright side

Though for a majority of consumers other lenders like banks and credit unions are better options for an auto loan, BHPH can put customers with imperfect credit into cars that others could not. This gives people the opportunity to not only drive something, but also to improve their credit by making consistent payments – potentially enough to be approved for refinancing or for a more favorable loan in the future.

The big picture

BHPH loans are a good option for some people, but they should not be anyone’s first choice. If shopping around for loans with traditional institutions is unsuccessful, a BHPH loan might be an alternative option that can get you a reliable ride. As is the case with any loan, being a conscious consumer and doing your homework is always the best bet to ensure that you understand and truly agree to the terms and conditions of the loan.

    From the Desk of Roger Douville

    Collections matters more now than ever

    The pressure of funding loan volume will continue, and financial institutions across the country will continue their quest in securing loan volume that will satisfy their growth goals. Marketing departments will collaborate with their senior management teams in how best to attract loans that they hope will deliver the retail services per household numbers they are looking for.

    We all do it. We focus on growth goals and when that goal is achieved, (or not) we move on to the next conquest marketing program. As you know, it isn’t just about the growth. Growth has consequences; how you grow creates risk. However, as an industry we are far too slow to address the real issue and as per usual, the risk is noticed far too late in the process for us to avoid unnecessary losses. Loan growth creates a servicing need but none greater than in the collection area.

    The collections department and the people that work there do more for your financial institution’s loan performance than any other department. Frequent phone contact, not only emails, letters and texts are key for your loan portfolio performance.

    Not only do collectors keep the cash flowing and save you from losses, these individuals are a critical extension of your customer service. They do more for your brand loyalty than anyone in your building. Considering hiring staff specifically to “recover” past losses. At the very least, prior to any growth initiative, survey your support team. Can they comfortably handle 300 accounts or are they struggling to keep up with 500?    

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    Benefits of Credit Union auto loans

    For most, buying a car can be an exciting yet stressful milestone. And, with 107 million Americans with auto loans, it seems an essential element to the car-buying process involves securing and agreeing to an auto loan. The excitement of car buying often puts the type of car – rather than the terms of the loan and the lender – on the forefront, leaving the loan itself as a necessary afterthought.

    Well, with 6.3 million Americans late on their payments, and many, many more agreeing to bad loan terms on a whim, it’s time to be more conscious consumers of both cars and the loans we use to purchase them.

    The two main avenues for auto loans come from the auto manufacturers themselves and from consumers’ main (or only) bank. However, there is a lesser-known lending option: the Credit Union.

    Though Credit Unions are a formidable, growing force with great benefits, they are still a less often considered option for auto loans, especially to those who do not bank with them.

    3 reasons why you should get an auto loan at a credit union

    1. Better rates.

    Currently, credit unions don’t pay taxes. This alleviates much of the cost associated with generally conducting business. Plus, for the #2 reason listed below, members are all considered equally important for the health of the credit union, so they will work harder to get you approved at their best possible rate. Though at times their rates are comparable to banks’, CUs are usually have much more competitive for auto loans, personal loans, and credit cards.

    2. As a member, you’re an owner.

    At Credit Unions, each member is a part-owner of the organization and has an equal voting share. Plus, once you’re a member, you’re always a member. That means that CUs have more of an “individual” mindset; understanding that each member’s situation is different and that each member deserves to have the best possible change to reap the benefits that their membership can offer. This means that CU members reap three main benefits:

    • Loan applicants will look deeper and harder to ensure that you qualify for a loan.
    • Members are active participants with their banking institution and it tends to give people a community mindset.
    • CU members typically experience lower rates than bank customers.
    • Because of this, bonds between members and their Credit Union is stronger than bonds between a customer and their bank.

    3. Same offerings as a bank.

    Credit Unions have the same terms and conditions and the same protective products available to their members as banks have to their customers. Additionally, while banks are more focused on mortgages and commercial interest loans rather than on fixed rate loans (like auto loans), CUs focus on the opposite. The “bread and butter” of Credit Unions are fixed rate/auto loans, so not only are they good at it, but they’re competitive with each other, further motivating them to lower rates for those loan types.

    Big Picture

    Clearly, Credit Unions are the way to go, which is why they comprise such a large portion of our lender network. Many people have the mindset that CUs have very selective or specific membership guidelines, but they really aren’t as difficult to get into as you might think. CUs with a growth mindset can and have legally expanded their membership parameters. So, go by your local Credit Union and check them out!

    If you’ve already committed to an auto loan, not to worry. Luckily, not only do we work with mostly credit unions, but we shop them for the best rates on your new loan on your behalf. At no cost to you.

     

    From the Desk of Roger Douville

    Refinance loans a viable option for loan growth

    Growing and sustaining a consumer loan portfolio is a daunting task. I speak with the heads of many lending departments across the country about loan growth and how to get it. So many lenders turn to indirect in their haste to satisfy their appetite for loans. There’s no doubt that a well-funded, well-executed indirect program can pad your loan outstandings quickly, but indirect lending comes with unique risk and is expensive to acquire and manage. Of particular concern is the indirect treadmill many lenders find themselves on when the indirect portfolio starts to run off at 22 – 24 months, adding to the expense of acquisition.

    On the other hand, the advantages of refinance auto loans may offer an alternative to the traditional indirect treadmill. Refinance loans typically stay on the books for approximately 33 months. Some clients report even longer periods of 36 months! Another advantage that contributes to positive performance is the fact that your underwriters can see the performance of the borrower on the exact collateral you will be holding. It takes some of the mystery away.

    While lowering the interest rate on the previous loan may be part of the reason for the refi, the primary motivation is payment relief. True, there may be an underlying reason or financial stress driving the refinance that your underwriters may have to uncover. For the most part, people are simply looking to save money, make room in their monthly budgets, or add a vehicle service contract to protect themselves from a budget busting event. And with better built autos lasting longer (and costing more to repair) doesn’t a refinance request give you confidence that the borrower is taking control of his/her finances?

    So how do refinance loans perform? Quite well, thank you. My lender base reports that delinquency typically outshines an indirect portfolio with losses in the .45% range. Delinquency depending on the aggressiveness of your underwriting and collection team land in the .75% range.

    Refinance, like any lending initiative requires a lot of heavy lifting handling many moving parts. If you feel you may not have the assets to pull off the operation, then explore partnerships with proven companies that can get you there. You’ll be glad you did and your loan portfolio will be healthier because of it.

    All the best,

    Roger Douville
    VP of Lending Services, rateGenius, Inc.

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    Can money buy love and happiness?

    Money is everything, but it’s also not everything. We know, “that’s a little confusing”, but hear us out.

    We love and need money. Whether we like it or not, our world revolves around it, both on a planetary and individual level. Though money both prompts and funds most of our life choices, there are also non-economic elements; things like health, purpose, love, peace, and happiness within the human experience that motivate us to behave in certain ways. Though they are separate from money, and are achievable without, achieving these non-economic goals can be, and typically are, integrated somehow with having money.

    Since it’s Valentine’s Day, many of us have love and happiness on our minds, as those factors seem to be associated quite a bit – especially this time of year.

    And, since we’re advocates of strong personal finances, it seems prudent to discuss money’s role in achieving these important goals.

    Money and dating

    Most of us want to have lots of money, love, and happiness. For the single population especially, one or all of these elements could be missing or in need of improvement. So, can money buy love and happiness?

    The answer is: yes and no.

    Happiness

    According to a study, money can buy happiness. Money buys happiness when used to purchase free time, e.g. a vacation, certain days off, and having more time to explore oneself and one’s interests. Removing (even temporarily) or reducing daily time stresses can increase happiness. Since “time is money”, cash is typically involved in buying time.

    So, sure, money can and does buy happiness, but only to do a degree. Another study on the relationship with money and happiness determined that higher income is associated with less daily sadness, but not more daily happiness.

    “Money buys freedom from worry about the basic things in life” (Psychology Today); it creates circumstances that induce happiness, but it is not completely fulfilling.

    Love

    Unlike happiness, research does not show that money is able to purchase love itself. However, according to an article by Psychology Today, money might not be able to buy  love, but it can increase the chances of love. There’s two reasons why:

    Attraction.

    There are two genres of money-related attraction. First, there are those who are attracted to people with money. Money makes life easier. For those who seek stability or a comfortable lifestyle, money is an attractive element that can eventually lead to a loving relationship. Next, there are those who are attracted to similarity (most people). Studies show that not only are we more attracted to those who are similar to us, but also to those with whom we share similar attitudes and habits about money. Essentially, we are hard wired to be attracted to financially compatible partners. This makes sense because money habits are related to personality traits, and strong couples tend to have compatible personalities.

    Favorable Circumstances. 

    Money generates circumstances that are more favorable to love such as stability and lack of concern over basic needs.

    Dating Big Picture

    Money, in fact, cannot make you fully happy or fall in love, but that it can help you get there. So, if you’re single, here’s some tips to help you attract what else you’re seeking.

    • Maintain or build your income.
    • Develop good financial habits and budgets.
    • Seek those who do, too.
    • Buy happiness in stability, free time, and life experiences.
    • Good luck out there. Love is in the air!

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