Guaranteed Auto Credit and “Buy Here, Pay Here Car Lots” – What You Need to Know

Anytime an offer seems to be too good to be true, it probably is. Such is the case, with "guaranteed auto credit". This is a marketing term most commonly used by dealerships that finance their own cars without the use of a third party lender or bank. Most dealerships that function in this manner refer to themselves as Buy Here, Pay Here Car Lots.

While there may be a time of desperation in your life that you find no other option but to use this type of financing, it should be avoided if at all possible. Dealers that offer in house financing, offer a very expensive way to buy a car with bad credit. There are better options that you can take advantage of, but for the purpose of this article I’ll explain the in’s and out’s of buy here pay here financing.

Car Prices

You will most always pay more for a car at a buy here pay here dealer, than you will through a normal car lot or through a private party purchase. These types of car lots do not have a loan company that regulates the amount of money that can be financed for a vehicle. The commonly used valuation guides such as Kelley Blue Book and NADA are not used and the dealer can charge as much for the vehicle as they wish. It is common that vehicles at these types of car lots are priced thousands of dollars over their retail value. This puts customers out on the road owing more on a vehicle than it is worth and makes it very difficult for the customer to be able to trade their vehicle until it is nearly paid off.

When you purchase a vehicle with the aide of normal financing channels, such as indirect dealer lenders, banks or credit unions, the lender determines the true loan value of the vehicle. The loan is backed by collateral and the value of that collateral in proportion to the amount financed needs to be in line for them to have some sort of security in the loan, should recourse be needed if the loan goes into default. This prevents you from being upside down in your vehicle with negative equity, to a certain extent. It’s always better to apply with a real lender whenever possible, before resorting to this form of in house financing.

Interest Rates

Once again, there is not a real lender providing guidelines for your interest rates. Therefore, the dealer charges as much interest as they can get you to agree to, within state law. You can expect to pay as much as 29% interest at one of these dealers that offers guaranteed auto credit. That’s more than the finance rates charged by many major credit card companies and is considered by many to be predatory lending.

Repossession Rates

If you’re late on your payments, many of these guaranteed auto credit dealers that finance their own cars will not work with you as normal finance companies will. Repossession rates for buy here, pay here lots are very high. Some say that the reason that these types of dealers are more quick to repossess a car is because they make money by reselling a car multiple times, collecting multiple down payments.

Down Payments

It’s nearly impossible to get a no money down deal at a car lot that offers in house finance. The main reason is that the guaranteed credit is based upon your having a sizable down payment. In some instances, the amount that you pay down is equivalent to the amount that the dealer paid for the vehicle, and the amount financed is pure profit.

While the idea of guaranteed auto credit is appealing, it’s simply not a good deal if you’re interested buying a car with bad credit. There are much better ways to get a car loan and there are bad credit car loan companies that are willing to help you to get a vehicle, without the predatory finance charges and sales tactics employed by dealers that finance their own vehicles.

Do your homework, apply with some good lenders that specialize in helping people that have credit problems, and you’ll drive away with a much better deal.

Article Source:

Tagged with: , ,
Posted in Jimmy Moreland

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

  • 2017 Nissan Rogue Sport AWD Tested
    With consumer appetite for crossovers seemingly unquenchable, manufacturers are working overtime to keep showrooms stocked. To help feed the demand, Nissan plucked the already successful Qashqai from its international product menu and prepped it for stateside duty as the Rogue Sport. Landing amid a host of subcompact crossovers including the Honda HR-V, the […]
  • 2017 Nissan Rogue Sport AWD – Instrumented Test
  • Why Genesis Chose to Build a Twin-Turbo V-6 for Its First Sports Sedan
    Nearly every luxury automaker with a performance sedan relies on the brand and model’s history to define its identity. Heritage is a priceless attribute, but the ability to break free and create something unique is even more exciting. Enter Genesis, the au courant luxury brand from South Korea. In just a year, Genesis went from […]
  • 400-HP 2017 Audi RS3 Tested: Five Is Better than Four
    The hot cars created by Audi’s performance division (formerly known as Quattro GmbH, now called Audi Sport) often have been as expensive as they are awesome. Witness the $55,450 2017 RS3 sedan, the entry point to Ingolstadt’s go-fast inner circle. Employing an arsenal of handling hardware and a stonking inline-five engine, it is one of […]
  • Mercedes EQ Electric-Vehicle Badge Emerges, Arrival of First Products Revealed
    If you were just settling in with the latest round of Mercedes-Benz changes of nomenclature, the brand is most definitely not done with its renaming game quite yet. The Frankfurt auto show heralded the debut of a new badge worn by the Mercedes-Benz S560e plug-in hybrid, the GLC F-Cell fuel-cell vehicle, and the Mercedes-AMG Project One supercar. […]
%d bloggers like this: