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Why Are Buy Here, Pay Here Interest Rates So High For Vehicle Buyers?

In this article we’ll discuss why interest rates are so high at buy here, pay here car, truck, and SUV dealerships which many people have to use when they can’t get bank and credit union financing for vehicles. It should be noted that during and after 2020, many people had to rely on these dealerships to get transportation due to economic reasons.

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What is in-house financing (another name for buy here, pay here)? This type of deal involves the dealership actually supplying the loan instead of a bank or credit union. And, they can set the interest rates, and terms of the loan. For this article we’ll focus on rates.

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Many people feel like in-house financing rates are high because these dealerships are taking advantage of people experiencing poverty, bad economic conditions, and their desperation to get a vehicle to feed their families and get to work.

Car, Truck, And SUV Financing Interest Rates At Buy Here, Pay Here Dealerships

How do you feel about paying 29% interest for a loan on a vehicle? When seeing this number we expect most people will shake their head and walk away from any deal with these parameters.

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But let’s look at some facts on why these rates HAVE to be this high for the dealership to make some profit and be able to offer this program. After all, if they can’t, then many people won’t even have this option.

The repossession rate for people with sub-prime credit is around 25%. When you subtract the repossession rate from the 29% interest rate this gives the dealership only a 4% margin to make money. Needless to say, offering buy here, pay here service is very high risk.

Jacksonville NC and Onslow Buy Here Dealership

So, for many, if someone is unable to get bank or credit union financing, these types of terms are the last line of defense in not having transportation at all.

Another issue that needs to be discussed is why cars, trucks, and SUVs within this sub-prime market are older models with what seems to be a lot of problems.

In-house financing vehicles are meant for one purpose only, and that is to get you from home to work so that you can build your credit and get the vehicle you want. Many aren’t pretty, most have cosmetic problems, and other issues going on. Now, most dealerships will fix the problems that will put you on the side of the road, but they purposefully won’t fix cosmetic and luxury issues so they can keep prices low.

If dealers fixed every problem there is with an older model vehicle, then the math which makes offering that vehicle won’t reconcile.

New Bern NC and Craven Buy Here Dealership


Using the comments below, let’s discuss the following concepts.

Would you rather pay a larger down payment to decrease your interest rates on lot financing vehicles, or pay a smaller down payment and higher interest rates?

Remember, for the lot financing market to exist, the dealer has to make some money. And, given the default and repossession rate being so high the terms on these loans have to be the same.

In being innovative, what are your thoughts on making it possible for people to get vehicles when they can’t get a traditional loan?

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