“Buy a car with no credit!”
Sound familiar? Buyer beware.
Some car dealerships that advertise to buyers with bad credit or no credit — called “buy here pay here” car lots — use predatory lending practices that can make your financial situation even worse.
Fred Winchar, president and CEO of MaxCash,1 a licensed broker that connects auto loan borrowers to lenders, says that in his experience, many BHPH dealerships are dishonest. He says they often have hidden fees and expenses in their loan agreements, which are not clearly explained before the buyer signs on the dotted line.
They may also misrepresent the condition of the cars they sell.
“Since most of these cars are secondhand, they downplay mechanical issues with the car, hide information about previous accidents or tamper with the odometer,” Winchar says.
While there are certainly some ethical BHPH dealerships, a federal case highlighting the bad guys made headlines last year.
In August 2023, the Consumer Financial Protection Bureau2 filed a federal lawsuit against US Auto Sales Financing Services, which provided in-house financing for US Auto Sales, a buy here, pay here car dealership.
The CFPB accused the lender of a number of illegal practices, including wrongfully disabling borrowers’ vehicles, improperly repossessing vehicles, and failing to return millions of dollars in refunds to consumers. US Auto Sales has since shuttered all of its 39 locations across six Southern states.3
If you have bad credit or no credit, buy here pay here lots may seem like your only option, but Winchar says that isn’t the case.
“Buy here pay here is a solution, but it should be considered a last resort,” he says.
This post will help you understand how buy here, pay here car lots work, red flags to look out for, and better options for buying a car with low credit, bad credit or no credit.
Buy here pay here car lots? What to know about these subprime lenders
Other options for buying a car with bad credit
- Try a credit union first
- Apply through online lenders
- Buy through an online used car retailer
- Improve your credit score
- Buy a car through a private sale
- Get a cosigner
Buy here pay here car lots? What to know about these subprime lenders
A “buy here pay here” (BHPH) car dealership is one where the dealer offers in-house financing and usually specializes in working with borrowers who have bad credit. Some BHPH lots advertise “no credit check” car loans.
The Consumer Financial Protection Bureau4 ranks credit scores within the following parameters:
- Deep subprime – scores below 580
- Subprime – scores of 580 to 619
- Near prime – scores of 620 to 659
- Prime – scores of 660 to 719
- Super prime – scores of 720 or higher
While a borrower with a credit score of 580 may not qualify for an auto loan from a traditional bank, they might be able to get a loan from a buy here pay here lot.
How does BHPH work?
With typical dealership auto financing, the dealer sets up a loan for you based on your credit score with a third-party lender, such as a bank or credit union. After purchasing the vehicle, you make monthly payments to the third-party lender.
However, with BHPH financing, the car dealer actually funds the loan, and you make payments directly to the dealership. This allows buyers with no credit history or poor credit history to access loans.
This is different than obtaining a loan through a car manufacturer’s loan department, Winchar says.
If you finance through Honda, for example, the company's financing arm will provide the loan. The dealership becomes a middleman between you and their financing department, helping you to secure a loan based on your creditworthiness.
Winchar says that in this situation, the interest rate, fees, and loan terms would be more favorable since Honda is a reputable lender. Your loan payments would be reported to credit bureaus, which would improve your credit score if you consistently paid on time.
Most buy here pay here lots do not report payment activity to credit bureaus.
“BHPH is like borrowing privately with limited flexibility and higher interest,” Winchar says. “Even if you made on-time payments, it wouldn't help build your credit score.”
What is a typical down payment for a BHPH car?
There is no standard down payment for a buy here pay here car, though most say several thousand down is typical.
One Reddit user says they were asked to pay at least $4,000 as a down payment, while another bought a car for $5,000 from a BHPH lot with a $2,000 down payment:
However, some BHPH car lots called 500-down dealerships specifically advertise a $500 down payment to draw in customers who don’t have a lot of cash available to put toward a car purchase.
How often do you make payments at a BHPH lot?
Payments are often required on a weekly or bi-weekly basis, sometimes in person, as opposed to most traditional car loans with monthly payments. Loan terms are typically shorter, as well, 24 to 36 months at BHPH vs. 60 to 72 months for traditional car loans.
What are the pros and cons of buying a car from a buy here pay here lot?
Pros: The main benefit of buy-here-pay-here financing is that it allows drivers with bad credit scores or no credit score at all to immediately purchase a needed vehicle they couldn’t otherwise.
“They’re convenient, but it's important to consider the long-term financial implications,” says Michael Ryan, a retired financial planner based in New York City who says he has helped hundreds of past clients find and negotiate vehicle financing.
These are some cons of buying a car from a BHPH lot:
Higher interest rates and fees
Because borrowers with lower credit scores are viewed as higher risk for late payments or default, subprime lenders like BHPH lots charge higher interest rates to protect themselves.
According to Experian’s most recent State of the Automotive Finance Market report,5 the average auto loan interest rate across all credit scores was 7.18% for new cars and 11.93% for used cars. For people with credit scores between 300 and 500, this average interest rate jumped to 14.78% for new cars and 21.55% for used cars.
Bloomberg News found that some subprime borrowers paid an interest rate of nearly 30%.6
“Dealerships that work with subprime borrowers charge a higher interest rate because they are taking on an additional risk working with you without a payback guarantee,” Winchar says.
Some buy here pay here lots also pile on exorbitant fees because they know the borrower has few other options to get a car.
These are fees you may have to pay when you finance a car through a buy here pay here lot:
| Late fees | $25 to $50 per late payment is standard, or 5% of the monthly payment amount |
| Application fee | 1% to 2% of the total loan amount |
| Loan origination / processing / documentation fee | $500 is fair/standard, and some states like California and New York have caps on documentation fees, though dealerships in states without a fee cap can charge $1,500 or more |
| Prepayment fee (if you pay off the loan early) | 2% of the outstanding balance before payoff is typical, according to Experian |
So what does all of this mean for you, the buyer?
As an example, we calculated what it would cost per month and over the life of a loan to finance a 2014 Honda Accord LX Sedan from a traditional lender vs. a BHPH lender, considering:
- Kelley Blue Book Fair Purchase Price of $11,101
- Average interest rate on used cars from the State of the Automotive Finance Market report, based on credit score
- $2,000 down payment
These figures do not include additional taxes or fees, which vary based on the dealership/lender/state and may also be wrapped into the total loan amount.
Note that many buy here pay here lots require weekly or bi-weekly payments, sometimes in cash, and usually offer shorter loan periods than traditional vehicle financing — 24 to 36 months vs. 60 to 72 months:
| Interest rate | Loan term | Monthly payment | Total over life of the loan | |
| Traditional lender | 11.93% | 24 months | $428 | $10,272 |
| 11.93% | 36 months | $302 | $10,872 | |
| 11.93% | 60 months | $202 | $12,120 | |
| 11.93% | 72 months | $178 | $12,816 | |
| BHPH lender | 21.55% | 24 months | $470 | $11,280 |
| 21.55% | 36 months | $345 | $12,420 |
In this example, you would have a higher monthly payment for the same loan term buying through a buy here pay here car lot and also pay more over the life of the loan (about $1,000 more for a 24-month loan and $1,500 more for 36 months).
Financing over 72 months at a traditional car dealership would give you the lowest monthly payment but ultimately cost the most over the life of the loan.
Can't afford your car payment? See if you qualify to refinance for a lower payment.
Auto Credit Express is A+ rated with the Better Business Bureau:
- Average Saving: $1,700 or $143 per month
- Minimum Credit Score: 525
- APR from 3.99%
- Loan Amounts: $5,000 – $45,000
- Vehicle Criteria: Under 10 Years/150K Miles
Get a refi quote from Auto Credit Express in 30 seconds >>
Limited selection of vehicles
Because their business model is about making profit on high-risk borrowers, people who worked in car sales on the r/askcarsales subreddit say that buy here pay here lots try to buy the cheapest cars they can to resell, for instance, used cars on sale at auction.
A former auto insurance worker says that when he went to file a claim for a BHPH dealership, he was told the dealership would often sell the same car 4 or 5 times to different people who had repo’d:
An accountant who worked for a buy here pay here car lot confirmed many of these dealerships expect people to repo so they can continue to resell the same car and at least collect on the down payment:
One person says the amount the buy here pay here requires as a down payment is often the break even price for the car they’re trying to sell you:
A former BHPH employee says if you do shop at a buy here pay here car lot, you should have the car inspected at a local repair shop before purchasing:
Another person who bought a lemon from a BHPH suggests looking up the CarFax for your car on your own, and not trusting that the one the dealership gives you is up to date:
High risk of repossession
According to a report by the Consumer Financial Protection Bureau,7 the likelihood of a subprime auto loan becoming at least 60 days delinquent within three years is approximately 15% for bank borrowers and between 25% and 40% for buy-here-pay-here borrowers.
Winchar says this is because most people who resort to BHPH do so because they have no other choice and are bad credit risks.
“Their financial fluctuations make it hard for them to consistently keep up with their payments,” Winchar says.
The high interest rates on buy here pay here car loans, coupled with high maintenance and upkeep costs on the vehicles purchased, strain the borrower’s finances and lead them to default on the loan.
However, some Reddit users pointed out that while BHPH lots can be seen as predatory for charging high interest rates and “aggressively repossessing cars,” these practices are ultimately a necessary safeguard for lending to low-income, high-risk borrowers:
Learn what to do if your car is repossessed.
No reporting to credit bureaus
If you are trying to rebuild your credit, BHPH car lots will not help you since your payments likely won’t be reported to credit bureaus.
This can be either a pro or a con, depending on how likely you are to successfully make payments on your car.
Note that this is not the case for all BHPH lots, so you should read the fine print on your agreement and ask the dealership if your payments (or missed payments) will be reported.
Other options for buying a car with bad credit
If you need a car right away and have little cash and low credit, BHPH and other subprime auto loans may seem like your only option. However, Winchar says this is usually not the case.
“Most people rush for buy-here-pay-here dealerships, and I consider it the last option for people with bad credit because they are not a better option,” Winchar says.
He and Ryan offered these alternatives to buying from a buy here pay here car lot:
1. Try a credit union first
Credit unions are nonprofit financial institutions owned by the members they serve. They are known for having flexible lending criteria and better interest rates than traditional banks, Winchar says.
Several Reddit users said credit unions are the best option to secure a reasonable rate with a low credit score:
2. Apply through online lenders
Winchar and Ryan suggested applying through online lenders to obtain a car loan. While your interest rates will still be higher than average if you have a low credit score or no credit score, you may be able to avoid the extra fees associated with many BHPH loans, plus select from a wider range of vehicles:
| Lender | BBB rating | Minimum credit score | APR |
| Ally | A- | 520 | 8.25% – 19.91%* |
| Auto Credit Express | A+ | 520 | Varies |
| AutoPay | A+ | No minimum | Starting at 4.67% |
| RoadLoans | A- (for parent company Santander Consumer USA) | No minimum | Not advertised |
*Based on estimated rate table from highest to lowest credit score
Several people on Reddit also recommended applying for a car loan through Capital One Auto Finance:
If you're ready to buy a car, but you have low or no credit, Auto Loan Express is a quality lender:
- Better Business Bureau rating of A+
- In business since 1999
- For new or used cars
- Auto loans and refi for buyers who have low or no credit, or who have gone through bankruptcy or had a vehicle repossessed
- Pre-approval within 30 seconds
24 hours to a car loan with Auto Loan Express >>
3. Buy through an online used car retailer
Online dealerships like CarMax, Carvana and DriveTime offer in-house financing as an option but report payments to the three major credit bureaus: Equifax, Experian, and TransUnion.
| Retailer | BBB rating | Minimum credit score | APR |
| CarMax | A+ | None advertised | 6.95% – 22.95% APR* |
| Carvana | F | None advertised | 9.09% – 16.46% APR* |
| DriveTime | A+ | None advertised | 7% – 22.6% APR* |
Several Redditors claimed they were able to finance a vehicle through CarMax with deep subprime credit scores, albeit at a high interest rate:
A CarMax employee says they financed buyers with credit scores in the low 400s:
Borrowers with low credit scores shared similar experiences working with Carvana:
DriveTime experiences were less favorable:
4. Improve your credit score
If you can hold off on getting a car, improving your credit score can help you secure a better interest rate.
Winchar says the easiest and fastest way to rebuild your credit is to check for errors on your credit report and dispute them. You can also call your credit card company and request an increase in your credit line, which immediately improves your debt utilization ratio.
You should also work on paying your bills on time, since payment history is a major factor that determines your credit score. Learn more about repairing your credit score.
5. Buy a car through a private sale
If you have money already saved for a down payment, consider buying a less expensive car outright from a private seller while you save up money and build your credit score to finance a better car at a lower rate in the future.
You can find cars on sites like:
- Facebook Marketplace
- Craigslist
- ebay
- CarGurus
- Truecar
- AutoTrader
One Reddit user suggested “paying yourself” whatever you’d be spending on a car payment each month to put toward a future vehicle:
These are some tips from Reddit users to make sure you buy a reliable car at a fair price:
- Check the KBB price of the vehicle online
- Check the vehicle’s history with a Carfax report
- Get a pre-purchase inspection from an independent repair shop
- Don’t be afraid to negotiate the price
- Look for reliable car brands like Honda and Toyota (avoid Infitini and
- Get an insurance quote ahead of time
- Meet the seller in a public place during daytime hours
- Verify the title authenticity and make sure the VIN matches what’s on the title
- Don’t offer to pay in cash or bring cash with you to meet the seller. Instead, bring a cashier’s check for the total amount, or ask the seller to meet at your local bank and ask the teller for a cashier’s check once you’ve decided on a price. The seller should have the title with them and can sign it over to you there.
- Notify the DMV of the vehicle sale
6. Get a cosigner
Since the co-signer is responsible for the loan should you default, having a cosigner with good credit will improve your chances of a traditional loan approval and help you get a better interest rate.
Just make sure you can afford to pay your loan every month and won’t trap your cosigner with a default loan or other negative credit activity.
Keep in mind …
Every car lot has different operating procedures. Winchar says to ask for transparency upfront about fees, pricing, and loan terms at any BHPH lot.
“Find a different dealership if they seem unwilling to answer your questions directly or offer clear information,” Winchar says.
Check out these other articles about cars and transportation help:
SOURCES
- Maxcash.com. https://maxcash.com/
- “CFPB Sues USASF Servicing for Illegally Disabling Vehicles and for Improper Double-Billing Practices,” Consumer Financial Protection Bureau. Aug. 2, 2023. https://www.consumerfinance.gov/about-us/newsroom/cfpb-sues-usasf-servicing-for-illegally-disabling-vehicles-and-for-improper-double-billing-practices/
- “U.S. Auto Sales chain closes all locations, including in Athens,” Joe Hotchkiss for the Athens Banner-Herald. April 23, 2023. https://www.onlineathens.com/story/business/2023/04/28/u-s-auto-sales-closes-entire-chain-of-stores-including-in-athens-ga/70149778007/
- “Borrower risk profiles,” Consumer Financial Protection Bureau. https://www.consumerfinance.gov/data-research/consumer-credit-trends/student-loans/borrower-risk-profiles/
- “State of the Automotive Finance Market Q4 2023,” by Melinda Zabritski, Head of Automotive Financial Insights, for Experian. February 2024. Experian. https://www.experian.com/content/dam/noindex/na/us/automotive/finance-trends/experian-safm-q4-2023.pdf
- “How Wall Street Makes Millions Selling Car Loans Customers Can’t Repay,” by Paige Smith, Scott Carpenter and Rachael Dottle for Bloomberg Markets Magazine. Nov. 13, 2023. https://www.bloomberg.com/graphics/2023-wall-street-subprime-car-loans/
- “Data Point: Subprime Auto Loan Outcomes by Lender Type,” Consumer Financial Protection Bureau. Sept. 2021. https://files.consumerfinance.gov/f/documents/cfpb_subprime-auto_data-point_2021-09.pdf
