How Does Buy Here Pay Here Work?

The Buy Here Pay Here (BHPH) is a system of financing in which the car or truck seller arranges the finance / loan for the buyer. People with a bad credit history or a low credit rating use this method. A person or an institution gets a low credit rating when he / it declares bankruptcy, overshoots the limits of the credit card, does not pay back the installments on loan or when there is delay in paying back the installment.

In simple terms credit rating is the ability of the borrower to repay a loan. A low rating means that the ability of the borrower to repay the loan is low. This is due to the conditions mentioned above. Entities with a low credit rating do not easily get loans from banks and other traditional lenders. For want of credit they cannot purchase cars. The BHPH system allows them to do so and do it conveniently.

Flexibility and an understanding attitude are the primary strengths of the BHPH system. These dealers are more used to dealing with those with a low credit rating. Plus, they have a vested interest in making the sale. Therefore they are quick and accommodating when it comes to making the deal. Another major merit of this system is the pragmatism involved in it. The BHPH dealer first makes a realistic assessment of your repayment abilities. Based on this, you are offered those cars that are within your budget. With a normal dealer the process is executed in a reverse manner – the dealer will offer you all kinds of expensive cars only to find out later that the offered alternatives are out of your grasp.

For some buyers the BHPH method offers a chance to improve their credit rating. BHPH dealers have a system of reporting your repayment patterns. By making timely repayments you will improve your credit rating in the market again. This can put you back in business. Apart from these aspects, the BHPH system may be the only option for some borrowers – those who have been denied credit by banks and other traditional lenders.

On the downside is the highly inflated interest rate on loans under the BHPH method. The dealers have taken more than normal risk by lending to low rated people and so rightly expect higher returns. Then there is the issue of limited choice of cars available to you. Finally, there is a genuine possibility of being given a car of low quality that turns out to be more expensive in the long run due to maintenance expenses.

The Buy Here Pay Here (BHPH) system is a method of financing the purchase of cars by people / institutions with a bad credit history. Declaration of bankruptcy, non payment or late payment of installments on loans taken and spending beyond the card limits results in a low credit rating or a bad credit history. When the credit rating goes below a certain limit, the person or institution cannot get any more credit from banks and traditional lending institutions. The lower limit depends on the amount and purpose of the loan.

In case you have a low credit rating and need a car for much needed transport, the BHPH method may be the only option for you. This route will also offer you an opportunity to improve your credit score by making regular payments, something that is usually reported by the BHPH dealers. Here are the reasons why the BHPH method is preferred over banks and other traditional lending institutions:

Reluctance: Most banks and traditional lenders have a fixed method of working. They assess the repaying capacity of the buyer. These institutions usually demand a collateral i.e. control over some asset of the borrower that can be confiscated in case the repayment is not made. This is a somewhat rigid and conservative method of functioning. Although banks play safe by this kind of work culture they ignore enterprise and risk taking. With a bad credit history conservative lenders will almost certainly reject your loan application. BHPH dealers on the other hand are ready to finance buyers with low credit rating.

Hassles: Conservative lenders have elaborate and time-consuming procedures to assess the repaying capacity of the buyer and other details. This can delay the actual purchase and cause great anxiety and trouble to you. BHPH dealers have a vested interest in selling the car in the least possible time and therefore adopt a flexible approach.

Assistance and Approach: BHPH dealers first calculate your repaying ability and then offer you the possible car options. This is exactly reverse of what happens with a regular dealer – who make you all kinds of expensive offers only to find out later that you have financial limitations. Then again BHPH dealers are more experienced and will show greater understanding of your situation. The bottom line is that BHPH dealers are more likely to be realistic and pragmatic.

Learn more about buy here pay here at Buynpayhere.com.