Buy Here Pay Here Car Lots - Understanding This Form of Secondary Auto Financing
If you’ve spent much time in America, you’ve no doubt came across a flashing yellow and red sign that says, “Buy Here Pay Here”. They’re in every town across the country and can leave one to wonder what these little car lots do.
These types of car lots offer to finance their own cars. Rather than using outside lenders, they simply promise to “tote-the-note” for anyone that has a job and a big enough down payment.
What is the real story behind these little car lots and is this form of financing something that should be looked into a little further before jumping in head first?
One of the first things that you’ll notice if you patronize one of these buy here pay here car lots is that most of the autos for sale are 5 years old or older, with high mileage. This is because these older, higher mileage autos can be purchased by the dealers very inexpensively at auto auctions.
New car trade-ins that don’t make the cut for bigger retailers, are sold for cheap at local auto auctions, where they are sold to smaller dealers hoping to cash in on the credit problems of lower income car shoppers.
This leaves one to wonder if the vehicles can be trusted mechanically. There is no warranty to speak of so that’s something that you should definitely consider.
Also, the interest rates and finance charges that are accrued on these in-house auto loans can mount up swiftly. An average of 24% APR can be expected across the board as an average among these small dealers. This can be higher than most all other forms of credit, and with the merchandise being of questionable mechanical history, quite a financial risk.
These dealers aren’t counting on you making the payments though and ever paying the vehicle off. Repossession rates are very high in the buy here pay here industry. If you’re a few weeks late, be looking for a repo truck to pull in your driveway any moment.
While not all buy here pay here is necessarily bad, you should carefully look the vehicle over and keep a close eye on your wallet when shopping.
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