The Demand for Buy-Here Pay-Here Car Lots

High unemployment rates, inflation, and a damaged currency have fed the wave of foreclosures and bankruptcies that plague modern life. Behind every one of these fiscal calamities lies a person or a household with ruined credit and almost zero cost. These households often depend on unemployment benefit, weekly pay checks and public assistance (or a combination of all three) to survive through a week and have almost nothing left to save. However, almost all of them still need to drive.

The BHPH model caters to those in society who have been left behind by a struggling economy. This type of car seller can sell to customers who have no credit and little cash, but the trade-off is extremely high interest rates, sub-standard cars and often-unscrupulous collection actions against car owners who fall behind on their weekly payments. Although these businesses help people get the transportation that is essential to modern life, they also are often condemned by the public as businesses that prey on the disadvantaged.

Some analysts suggest the BHPH market should be regarded as a financial services market rather than an auto market. These companies often seem preoccupied with payments and collections on high-interest loans, using vehicles (rather than post-dated checks, for example) as security. Those who don’t pay lose their car, so the onus is upon the poor who are already down on their luck to pony up the exorbitant interest rates charged by BHPH sellers.

A normal car-buying process lets shoppers look for the car they want and then discuss financing options. BHPH dealers often talk about credit history, down payments and payment amounts before showing prospective buyers the cars they might be able to buy. After choosing their car, BHPH buyers are often required to physically report to the dealership to make payments. Payments late by as little as one day are often repossessed.

Other terms can make the BHPH experience even more horrendous for the buyer. For example, many dealers equip the cars they sell with tracking devices that will automatically shut the cars down if payment was not received at the right time. This can leave drivers stranded in unusual places with no way to get home or to reach safety.

One CEO of a large national chain of BHPH lots confessed to media outlets that his business emphasizes collections, not sales. Although this has proved to be a profitable business model, it has resulted in what many people believe is the exploitation of the poor. Cars are sold in as-is condition, without inspection and without warranty. This means a driver could have signed for a 20-percent interest loan on a car that might not last a week, leaving him or her open to repossession and even more credit problems. At that one company, the repossession rate was reportedly almost one-fifth of all sales.