Dirty Dealer Deed #2: Buy Here, Pay Here

Last week, I talked about yo-yo sales.

Yo-yo sales are bad enough, but Buy Here Pay Here (BHPH)  dealerships are the dirtiest dealer deed  of them all. They target vulnerable consumers (that’s you, o broke one) with predatory practices, their loan terms are not of this planet, and the cars they sell are pure crap (It’s my blog and I’ll opine if I want to).

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How it works: Unlike an established franchised dealer (Three Stooges Honda, for example) BHPH dealerships are completely independent. They’re typically located within low-income communities or in communities with a large immigrant population. Why? Because space rents are lower and the populace is easy pickins for a sleazy car dealer.

Their cars are stacked in front, complete with whirligigs, signs, and other gizmos intended to suck in, er, attract buyers.  If you’re broke and in need of a car, that buyer is you. You may have no credit, or poor credit, or are new on the job.

You might also be the first in your family to buy a car, and may not know how the process works.

Everything is done in-house, from your purchase to the loan servicing. Unlike traditional auto loans, where you make your payment to a third-party lender, you make your payments directly to the BHPH dealership. Here are some other key differences:

  • You’ll need to make weekly or bi-weekly payments, very often in cash.
  • Unlike a traditional dealership, where you have a selection of cars to suit your budget, BHPH dealerships offer a narrower range of cars to choose from.
  • Their stock typically consists of older, high-mileage vehicles that traditional dealers may have passed on at auction. One look at the Carfax report will tell you why.
  • Miss a payment with a traditional lender, and you’ll get dinged with some late fees plus some annoying phone calls. Your car will typically be repossessed after30-90 days of non-payment.
  • If you miss a payment with a BHPH dealership, you can expect to have your car repossessed the next day, and expect to pay several hundred dollars in late fees.
  • You can expect to pay a higher down payment.
  • Your interest rate will typically be in the double-digit range, essentially torpedoing your budget and your ability to repay the loan.

The Ripoff is strong with this one

BHPH dealers in California came under fire for such practices and for “churning” vehicles, e.g. rapidly selling a repossessed vehicle to a succession of buyers.  The Los Angeles Times outlined the saga of the “Golden Kia” in their story from July 2013.

BHPH vehicles are typically sold for much more than they’re worth, leaving you with making payments on a car that’s not even close to being worth what you are paying on it. In other words, you’re hosed. In more elegant terms, you’ll be underwater on your car loan.

Do you see where this is headed?

You will also have very little recourse if the BHPH dealership closes, as they are wont to do.  A high default and repo rate means little to no cash flow, which means very little opportunity to pay rent and other expenses.

These dealers are in the news, and with good reason. You need to be careful. Just because you’re broke and can’t qualify for that shiny  zero percent financing the big dealerships offer, doesn’t mean you have to put up with BHPH shenanigans.

Tomorrow: How to buy a car without going the BHPH route, and tips if BHPH is your only option.

“BHPH you’re my only hope!”

Sorry.  Couldn’t help it.

Until next time.