Watch Out for These Signs at a 'Purchase Here, Pay Later' Vehicle Sales Outlet

Navigate the 'Purchase Here, Pay Later' Car Dealer with Caution

Buying a vehicle can be an essential need, but for some, it turns into a challenge, especially if you have poor credit or no bank account. Although individuals with good credit scores can secure a used car loan with a reasonable annual percentage rate (APR), around 6.8%, those with a lower credit score may face an APR close to 19% or even higher. Traditional financing can be difficult to secure for these individuals, leaving them with no choice but to turn to a "Buy Here, Pay Later" (BHPL) car dealership.

BHPL dealerships specialize in selling vehicles to those who struggle with traditional financing. They often claim that they do not consider credit scores or perform credit checks. While most BHPL dealerships operate ethically, offering a necessary service to those in need, it's crucial to proceed with caution to avoid any shady practices.

How does a BHPL loan work?

BHPL dealerships function like regular car dealerships. You choose a vehicle and negotiate the financing. The primary difference is that you borrow the money to purchase the car directly from the dealership, bypassing a credit check and setting loan terms as they see fit, within the parameters of local laws, of course.

BHPL loans may be a lifesaver for individuals who cannot secure traditional financing, but they come with drawbacks:

Limited options: BHPL dealerships usually present you with a limited selection of cars within a specific price range, which is often meager and outdated.
High-interest rates: Interest rates at BHPL dealerships are typically high - around 20%, and even higher in some places - which can hinder the refinancing of the loan as your credit improves.
Frequent repayments: BHPL dealerships may demand weekly loan repayments, which can be challenging to maintain.
Insurance: Despite having full insurance coverage, the settlement in the event of a total loss often falls short of covering the loan, leaving you responsible for continued payments on the destroyed vehicle.
Large down payments: With a poor credit rating, many BHPL dealerships require high down payments as a condition of the loan.

Choosing a BHPL dealership despite these disadvantages? Exercise caution. Not all BHPL dealerships play fair.

No loan is excessive

BHPL dealerships' primary objective is to offer loans to individuals who cannot secure financing elsewhere - but be wary if the dealership promotes itself as offering loans without any credit checks or a limit on their size. This might be a sign that they rely more on loan defaults than on selling vehicles or profiting from interest on loans.

Most lenders have a limit on the amount they lend to individuals due to avoiding unmanageable loans. However, some deceptive BHPL dealerships exploit this by offering unreasonably large loans, knowing that many people will struggle to pay them back.

Spot delivery

If the salesperson at the BHPL dealership encourages you to take the car home while they work out the details, leave. You will eventually receive a call informing you that there was a problem, and that you must pay additional funds for the down payment or that the interest rate will be much higher than you expected. This practice is commonly known as "spot delivery" and aims to exploit your belief that you have already purchased the car, resulting in your agreeing to any new terms the dealership proposes.

GPS trackers

Many BHPL dealerships require GPS trackers in the vehicle until the loan is paid off. While this is generally legal (as long as you provide your consent), it raises privacy concerns and suggests that their primary focus is on repossessing cars instead of selling them or servicing loans. The presence of the tracker suggests they expect you to default and have streamlined their repossession process to make it more convenient for them. If the dealer insists on this, consider looking elsewhere for your vehicle, if possible.

If your credit is too poor to secure traditional car financing, a BHPL dealership might be an option. But be conscious of high interest rates and unfavorable terms. Remember to watch out for warning signs.

At a BHPL dealership, you'll have the option to pay for the vehicle and any related expenses directly at the location. Keep in mind that you will be providing payment for both the purchase and the financing.

When considering purchasing a vehicle from a BHPL dealership, you will need enough money for both the down payment and ongoing payments with high interest rates.

Enrichment Insights:

When dealing with a BHPL dealership, be on the lookout for several warning signs to avoid potential scams or unfavorable deals. Here are some red flags to watch for:

High Interest Rates: BHPL dealers often charge high interest rates, which, over time, can lead to a significant increase in the overall cost of the vehicle. Be cautious of rates that seem excessively high in comparison to market standards.
Hidden Fees: BHPL dealers frequently add various fees to the purchase price, such as loan protection insurance, dealer market adjustment, and dealer prep fees. These fees can add up quickly and may not be clearly disclosed. Ensure all fees are explained and negotiated.
Lack of Transparency: If the dealer is not transparent about the terms of the loan, the interest rate, or the total cost of the vehicle, it could be a sign of a scam. Ensure all terms are clearly explained and documented.
No Written Agreement: Always insist on a written agreement that includes all terms of the loan, including the interest rate, payment schedule, and any additional fees. A verbal agreement is not legally binding.
Pressure Tactics: BHPL dealers often use high-pressure sales tactics to push you into making a decision quickly. Be cautious of dealers who try to rush you into signing a contract without giving you time to consider your options.
No Warranty or Limited Warranty: BHPL dealers often do not offer warranties or provide limited warranties that are restrictive in terms of what is covered and where repairs can be made. Be aware that you may be purchasing a vehicle with no warranty protection.
Unusual Payment Terms: Be wary of payment terms that seem unusual or overly complex. Legitimate dealers should offer straightforward payment terms that are easy to understand.
No Consumer Protections: Unlike traditional dealerships, BHPL dealerships are not subject to the same consumer protections, such as the "Used Car Rule," which prevents dealers from misrepresenting a used car's condition or warranty. This lack of oversight can make it harder to protect your rights as a consumer.

By being aware of these common warning signs, you can better protect yourself when dealing with a BHPL dealership.