By on July 10, 2014

buy here pay here

Buy-here, pay-here lots, traditionally the place to find a vehicle with little, bad or no credit, are facing some stiff competition as of late from new-car dealers offering cheap financing.

Automotive News reports in a conference call this spring by America’s Car-Mart CEO Hank Henderson, he said new-car dealerships were making finance offers on both low-end new vehicles and high-end used units his group are unable to counter:

Some of the offerings are zero percent down, no payments for 90 days. We’ve even seen no payments for a year — and then those are getting financed at 72 months, sometimes even longer.

Lenders are fueling the demand for cheap credit at new-car dealers, as well, forcing the buy-here, pay-here dealers to turn down business from consumers hoping to find as much with the latter party. That said, the approach said dealers promote — including substantial down payments and shorter terms — claims to be more economically healthy for subprime consumers than the competitive approach that could leave a consumer upside-down in the long run.

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59 Comments on “Buy-Here, Pay-Here Dealers Face Stiff Competition From New-Car Dealers’ Cheap Credit...”


  • avatar
    Conslaw

    I disagree about whether the new car financing or buy-here-pay-here is more economically friendly. I disagree with the assumption that the new-car buyer is more “upside down”. The buy-here-pay-here cars are generally marked up over the price of the same car for cash buyers. 20 years ago a BHPH operator told me his philosophy was 2×2+2, that is, take a car worth $2000, multiply the price by 2 and add 2,000. Sell the car for $5,999.99. Finance it at the highest allowed interest rate. Inflation has changed those figures a bit, but you get the idea.

    It depends on the buyer though. For the buyer who is going to default on a $350/month car payment, a true tote-the-note BHPH is better because they don’t report to credit bureaus, and they seldom seek deficiencies. Most BHPH lots don’t tote the note though, they sell to subprime finance companies who do report and do seek deficiencies. For the buyer who makes all payments though, having a new car with a new car warranty and building up a positive credit history with a new car finance company are huge pluses in favor of a new car.

    • 0 avatar
      Kaosaur

      …I have a friend whose credit is so bad that his payment on his dealership-purchased Cruze is $500/mo. He had to go through a company that takes the payments out of his paychecks before he gets them. It’s not short-term financing either…

      Wrap your head around that one.

      I’ve seen that 2×2+2 philosophy at play in my area. Outrageous prices on some serious beaters around here. Folks are poor enough to afford the payments but not the cash on hand to buy at a sane price and these scumbags don’t mind keeping their customers long-term impoverished.

      (Side note: this company that takes his paychecks and makes his car payments is habitually late with making his payments well after they’ve taken out his money. Friend should have bought used from Steve Lang instead, apparently.)

      • 0 avatar
        Toad

        If your credit is so bad that you have a $500/mo payment on a Cruze it means you have not paid your debts to a lot of people: that makes you a scumbag. When you lay with dogs, you get fleas.

        BTW, I get that some people get into problems with medical bills or layoffs, but I did F&I work and there a LOT of people that just consider paying their bills optional. They are very nice when they want to borrow money, but do a 180 when it comes time to pay it back.

        If you think Buy Here Pay Here dealers are Scumbags start your own car lot and lead them on the pathway to enlightenment. Good luck.

        • 0 avatar
          Kaosaur

          Actually he has about $200,000 in unpaid medical bills for multiple mandatory hospitalizations and he can’t pay them. Unfortunately the rewrite to the bankruptcy laws a decade or so ago royally screwed him over.

          He’s slightly scummy (as much as anyone else is in the suburban southeast) but he’s (only recently) got a good job and pays his other debts no problem.

          I’m not saying that BHPH dealers are scumbags; this was a regular old franchise dealership I’m talking about and there are scumbag dealerships among both. I know there are some great car dealers on here but there’s a reason dealerships are generally hated among the public. I look forward to a future where I at least have the option to buy direct from most manufacturers.

          • 0 avatar
            mikeg216

            You are able to discharge medical debt through bankruptcy, that has not changed.

          • 0 avatar
            greaseyknight

            His friend probably makes to much to pass the means test and doesn’t have enough dependents or secured debt to get him under median. Often the best time to file is right after getting a good job, you have the money to pay bills things moving forward, but not enough income to be over median.

            Yes, I work in the bankruptcy field, can you tell?

          • 0 avatar
            pragmatist

            Actually, according to a lengthy study in Time(?) a while ago, the biggest scumbag in that story might be the hospital. They charge stupendous markups, have enormous profit margins and charge uninsured or under insured patients the very highest rates.

            The local BHPH in my area is actually a fairly busy repair shop and I get stuck going there for inspection (the only place convenient that inspects pre OBDII vehicles)

        • 0 avatar
          tuffjuff

          I wonder what trim level/MSRP of that Cruze happens to be…. you can easily price a Cruze well into 20k+ territory, and a 500/month payment for 4-5 years on a 20k+ car, with no money down, is pretty easy to acheive. That said, if you can’t put money down then you probably shouldn’t be buying a car – least of all, a new one.

    • 0 avatar
      matador

      The 2×2+2 works out here. Take an old car- for example, I paid cash on a 1995 LeSabre, just shy of 200,000 miles. It was $700. It did need two tires, so we’ll call it a $1000 car.

      In Billings, MT (Our nearest city), I saw a 1994 LeSabre with 230k miles and in a little worse shape.

      The price on it was $3800. I happily drove past in my $700 car.

      • 0 avatar
        28-Cars-Later

        The H is strong with this one.

      • 0 avatar
        CoreyDL

        How tired is your 200k LeSabre?

        • 0 avatar
          matador

          Amazingly, my LeSabre isn’t tired at all. The engine has plenty of passing power, and it’ll do 75-80 all day long with the A/C on.

          I’m having a new transmission put in it (Cost me more than the car originally did!), but other than that and some back suspension parts, it’s in pretty good shape.

          It’ll accelerate to 60 at about the same rate as my Audi A6 Avant with the 2.8- Granted, the Audi could keep going farther than the Buick would (Extra gear), but all that said, the Buick’s been a great car.

          After all, I bought it when my truck was in the shop and I was in a pinch. Two years later, I’ve basically purchased it again!

  • avatar
    S2k Chris

    Ummm…BHPH services subprime customers. New/”traditional” car dealers will only give the low-interest, long-term financing to prime and near-prime customers. Go try to get 0% for 72 months with, say, a sub-650 credit score and see what happens.

    • 0 avatar
      CJinSD

      Two years ago a friend of mine was told by a Hyundai dealer that they’d managed to get ‘top tier’ finance rates for someone with a 540 credit score. I have no idea if they’re still relying on high credit risks to build their market share, but strange things are possible. Is the 2014 car boom built on NINJA loans with nothing down, no interest and deferred payments? Would it be any odder than accepting that the IRS gives away over 100 billion dollars a year to cretins?

      • 0 avatar
        S2k Chris

        I wonder if that 540 credit score was due to a foreclosure/home short sale situation on an otherwise relatively clean credit report? There are A LOT of people out there with overall decent credit who are otherwise getting “screwed” because they have a foreclosure or short sale on their report. I have tenants now with mid-600s scores that have a loan on a Jeep and a Harley and their reports are perfectly clean aside from their short sale. I think more and more lenders are doing more critical thinking beyond just taking the score at face value.

        • 0 avatar
          CJinSD

          In context it seemed like his point was that he could finance anyone. We were looking at a Genesis 5.0R. My friend makes boxcars full of money but is about as responsible as Lois Lerner. I think he was concerned that he wasn’t going to get a favorable lease rate because of his practice of paying utility bills when things get shut off while blaming it on auto-pay failures. Once we test drove the Genesis it was academic anyway. Didn’t live up to the hype.

      • 0 avatar
        MAGICGTI

        I did F&I for a year at a Kia store, that didn’t happen. Maybe top tier for a dreck, like 13.99, but again, didn’t happen. 680 would have been the minimum for true top tier and it’s more than just the score, they look at history as well.

        • 0 avatar
          CJinSD

          I only know what the sales manager said in front of me. He could well have been lying to further the process. It wouldn’t make him unique. There seems to be a belief among car dealers that if they tell you that you can have what you want, you’ll get sold on what you can actually have at some point. A friend of mine just reminded me of the time I drove him to LA to get a hard to find car configuration only to be told it had been sold the night before when we got there. Further research revealed that they hadn’t had the car in stock for more than a week, but they’d lied about it to get him on the lot even though they knew it meant driving from San Diego and that they had nothing to offer that our local dealers didn’t have.

      • 0 avatar
        mikeg216

        580 maybe.. 540 with a significant down payment, if a dealer does enough volume the lender will buy it with some sort of compensating factor. A 620 will get you a cruze or avenger all day long.

      • 0 avatar
        Eyeflyistheeye

        I was at a Hyundai dealer checking out the Veloster, and the salesman told me he’s willing to finance everyone at 0% as long as they pay the sticker price on the vehicle, which includes overpriced tchotchkes such as window etching and paint protection.

        After that, he then told me that he extended an offer of 0% on an Elantra to an undocumented gentleman without proof of income, but he paid full price for the car, which was roughly $22,000 for an Elantra that could be had with minimal negotiation for $17.5k all day long.

        The same happened to me at a Ford dealer when I was looking at a Focus, the sales manager put on a dog-and-pony show and said he got me 0% by calling his friend at Ford Credit, but then compared to the TrueCar price, which I find fair to both buyer and seller, my trade value mysteriously disappeared. After some of the best guilt-tripping I’ve ever seen in my life, I told them that the guy at Hyundai told me anyone could get 0% if they paid full price for the car. That stopped them in their tracks, but I can’t say I was too angry, if one dealer can get someone a certain percentage rate, every dealer can, but it depends on what they want to do. I got a legitimate offer of 1.9% from Ford Credit on a Focus and the price I wanted from a better dealer.

        Rule of thumb: If the manufacturer is willing to finance someone, that means their credit isn’t too bad and that you can shop around on finance rates.

  • avatar
    Conslaw

    New car dealers don’t chase those with bad credit, but they often will often a good loan to a young person with no credit, especially those who have graduated from college.

  • avatar
    VoGo

    BHPH dealers are claiming that consumers are financially better off buying from them? WOW. That’s some serious chutzpah right there.

    • 0 avatar
      TMA1

      Hey, if payday lenders can claim to be providing a valuable service to the under-banked at only 600% interest…

      • 0 avatar
        S2k Chris

        I’m not saying payday loans aren’t shady, but I also think it’s stupid to bitch about the effective APR on a loan that lasts like 4 days. Sure if I loan you $20 today and you pay me $25 on Friday, that’s like 8 jillion percent (not really, but whatever) but…it was $5. Who cares.

        • 0 avatar
          sproc

          The problem with payday loans isn’t the occasional user. It’s the unsustainable cycle of the people who have to take yet another loan plus interest and fees on Friday to pay off that $25. Lather, rinse, repeat.

          • 0 avatar
            bball40dtw

            I have customers that own payday loan places. They also own insurance agencies and tax return businesses. They have a one stop shop for preying on the less fortunate during tax season. Its big money to be made.

  • avatar
    CoreyDL

    Of the cars pictured, I think I’d have to go LeSabre. I hated those Taurii, and the Park Avenue is one of the earlier ones I believe, and is not supercharged since it has a hood ornament.

  • avatar
    SCE to AUX

    I don’t know where this cheap money is, but I’ve already refinanced my 2-month old Optima via my local bank because the car dealer’s independent banker was a full point higher (2.49% vs 3.49%, for a score of 825).

    0% is a gimmick that’s financed by the vehicle price.

    A few years ago, a bankrupt coworker financed a new Jetta for 1.49%, as I recall. I think they viewed him as a good risk, since his debt had been wiped out, yet he had steady income. His bankruptcy was a result of a divorce (wife cleaned him out). The rest of us with intact debt pay more.

    • 0 avatar
      jmo

      What was the rate that Kia Motor Credit offered?

      • 0 avatar

        3.49?

      • 0 avatar
        SCE to AUX

        The independent bank’s rate was 3.49%. It wasn’t Kia’s finance arm.

        Truthfully, today’s low rates don’t amount to much difference per month, or even over the life of the loan. I think I saved 200 bucks to refinance by a whole point.

        With this in mind, it’s probably worth more for dealers to offer lower rates, rather than lose a sale by only offering higher rates.

        • 0 avatar
          Toad

          $200 x 100 customers a month is $20k in your pocket if you are the dealer. That will pay for a very nice house and/or boat. Ad a few more supplements to the deal (fabric protection, extended warranty, VIN etching on glass, floor mats, etc) and you are talking a ton of money, especially in a high volume dealership.

          Car dealers used to be the number one buyers of boats over 50′ long (and may still be). The above math is why.

    • 0 avatar
      Dr. Kenneth Noisewater

      Hmm, my Volt loan was 1.55% with 0 down for >750 FICO, which ended up being cheaper than 0% because of incentives that were only available with the interest-loan.

    • 0 avatar
      mikeg216

      Just because you have an 825 fico does not mean you are an ideal candidate for 0% the car finance companies use a different scoring model and with an 825 you either have a short credit history and the credit you do have is zero balance credit cards. That doesn’t give the lender much to work with to accurately gauge true risk, I would have turned you down for 0 as well.

      • 0 avatar
        SCE to AUX

        “with an 825 you either have a short credit history and the credit you do have is zero balance credit cards”

        Neither is true of me.

        It won’t matter anyway; I’ll pay the loan off way early anyway.

      • 0 avatar
        Toad

        Mike216, I can assure you it is very possible to have a long credit history with plenty of credit utilization and have a score in the 800’s.

        An 825 FICO will get you pretty much anything, anywhere. An 825 means you paid every body, every time, on time, all the time. That customer is as close to zero risk as is possible, and lenders like zero risk. If you have an F&I job and are turning down 825 FICO scores you are going to be fired, probably tomorrow.

        • 0 avatar
          SaulTigh

          An 817 FICO got me 1.94% for 72 months on an F150 with no money down. I drove it for nearly a month without a dime changing hands before the first statement came. I thought that was not bad. Another credit union offered me 0.74%, but only for 36 months. Booo!

          • 0 avatar
            DenverMike

            Besides great a great interest rate, what kind of rebates did you get with that? 20 to 25% or up to $12,000 off is becoming the norm.

  • avatar

    Bhph is around because folks don’t want the “hassle” or repairing $500 cars. Craigslist is full of bargains that need nothing more than socfets wrenches and a weekend. Some folks also have the misfortune of home owners orgs, local ordinances, and apartment rules putting undue burdens against vehicle repairs which hurt the folks who need the most help.

    • 0 avatar
      Kaosaur

      We’re not allowed to work on cars in our driveways here in our PoA, but every time they say anything I tell them we actually pay our fees and to go collect from the 80% of the neighborhood that isn’t (and to f*** off!).

      They tried hassling me over changing a V-belt one time. Geez.

    • 0 avatar
      Mathias

      “Bhph is around because folks don’t want the ‘hassle’ of repairing $500 cars. Craigslist is full of bargains[..]”

      The only problem is that those $500 bargains are all advertised upwards of two grand… My experience has been that if there’s something, anything wrong with a car, the discount doesn’t make up for it. It’s usually worth it to buy the nicest vehicle you can get your hands on, which in the last half decade has pretty much meant buying new.

      I have gotten bargains of the type you mention, but it’s always been word of mouth, a local bulletin board, etc.. On craigs, it’s much tougher to find bargains.

  • avatar
    DenverMike

    Victims, I mean BHPH consumers are actually renting the POS, except for when it breaks, the renter gets to fix it. And when the renter has paid 4 to 8X total, what it was worth at the beginning of the contract, and without missing a payment, they’re awarded the pink slip.

    The BHPH “dealer” will step up and fix the POS for the renter or put up the cash, but will add it to the back of the contract, further extending it.

    • 0 avatar
      28-Cars-Later

      I’m skeptical on 8 times the total, but with interest I could see 3x, maybe 4x.

      • 0 avatar
        DenverMike

        What about the rebuilt trans, ball-joints, axles, head gaskets, water pump…

        • 0 avatar
          28-Cars-Later

          The BHPH dealer isn’t making money on those repairs. That’s called you bought an old car and are paying for someone else’s deferred maintenance. Don’t do that lol.

          When I worked in the biz years back, our GM attempted to double his money. So he would buy $1500 cars, and put $3495 on them after *maybe* washing them or vacuuming them out. (this was in 2004/5). If cash customers were interested in this dodgy cars, he was more than willing to negotiate, but typically the people who bought them were on the lower rung of the ladder so to speak and had little money or their trade was a worthless rolling wreck. So he would put the cars out as stickered, require a hefty down payment (typically 2K), and put the balance on a X month payment plan at 21% (fun fact: PA welfare will give you up to two grand to buy a car which pretty much enabled this practice). I can’t recall them all but I would say about half of the time or more, the cars never came back after a few months payments. He sometimes recovered them, typically destroyed, and they either got traded/sold <$400 to whomever or junked for whatever scrap was at the time. So when people paid, he more than doubled his money with interest. When they did not, the return was substantially less but it was still there, but I know we never made 3x+ on bhph deals.

          • 0 avatar
            DenverMike

            I didn’t say the BHPH makes money on repairs. But the renter is out the money anyway, if and when they satisfy the contract and repairs. The BHPH benefits by the thing staying on the road. If the renter doesn’t have use of the car or can’t make it to their job, guess who doesn’t get their weekly rent? I’d say that’s the BHPH profiting.


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