The History of “Buy Here, Pay Here” Car Lots

Buy Here Pay Here or BHPH would refer to a system of running car dealerships wherein dealers would extend credit to the purchasers of automobiles. In most cases, buyers of the cars at BHPH dealerships would have poor credit history and so loans would have high interest rates. This method could provide options to those that are unable to meet the credit standards elsewhere.

Background and History of “Buy Here, Pay Here” Car Lots

The industry of this BHPH primarily originated in the early 1970s during the savings and loan crisis of United States. With numbers of similarities to the recent financial crisis from 2008 until the present credit was considered to be hard to obtain, unemployment was also rising and the economy was still into a transformation from a production-based economy to a service-based economy.

Those car dealers who still wanted to sell the cars had found their way to deal with increasing price of the vehicles being relative to income. They had to sell the vehicles in order to wary the customers who were unable or unwilling to pay cash for a new purchase. In most cases, once bank would not loan into the consumer this car dealer would begin starting a related finance company or RFC and would have the company approve the loan on a certain vehicle. And this was a valiant step to the banking business for car dealers.

There was an advantage on the part of the dealership with regards to having RFC to finance the sale was diminished on the sale as well as finance of the cars sold. Due to the fact that both companies had similar ownership then dealers might now benefit from the profit on both the loan and the sale for a single car. However, historically, the down payment needed for this BHPH loan was a bit larger compared to the total profit from the sale of the vehicle. With that, once the buyer did not make payments the RFC could then re-possess the car and sell it again into the dealership.

Starting 2008, numbers of outside lending institutions have conquered the market and so the average down payment on this BHPH loan has also decreased significantly since dealers would try to maintain a share into the market. Most benefits of separating the RFC from the BHPH dealership would be based on the tax code changes of the Tax Reform Act of 1986. In the said act, companies that are using inventory in the operating business are restricted from the use of cash accounting.

Benefits of “Buy Here, Pay Here” Car Lots

There are indeed numbers of benefits that this BHPH method could provide. First, they would put credit-challenged borrowers into a car wherein traditional lender would not. Then, on-time payments could also help repair the credit history and finally, they would buy older cars and would be more willing to take in an older beater in the direction of the down payment of the new car.

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