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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