When looking for a car, you may see lots advertising both "buy here pay here" loans and "guaranteed financing." Both of these lending options are going to promise you that you can walk off the lot with a vehicle — but other than that, they're very different. Before you make a purchase, you should know all of the facts.
What's the Difference Between Buy Here Pay Here and Guaranteed Financing?
A "Buy Here Pay Here" loan is intended for those who have exceptionally bad credit or unsatisfactory income. These loans are given by the dealership itself, generally at high-interest rates. In other words, the borrower buys the car from the dealership and also finances the car from the dealership.
"Guaranteed Financing," on the other hand, means that the dealership has existing relationships with reputable banks which are willing to offer financing to its clients. This comes with numerous benefits.
Buy Here Pay Here Loans Don't Report to Credit Agencies
If you're at a Buy Here Pay Here lot, it's likely you need to work on your credit. A BHPH loan isn't going to help you, as they don't report to credit agencies. Comparatively, a Guaranteed Financing loan through a conventional bank is going to report your on-time payments every month. Over time, this is going to improve your credit.
Guaranteed Financing Offers a Selection of Banks
When you go through a BHPH lot, you only have one option: the dealership. A Guaranteed Financing loan has an assortment of banks that you can choose from, so you can ensure that you get the best deal. And about that...
Buy Here Pay Here Loans are More Expensive
Since BHPH loans are usually a last resort, lots can charge quite a lot in interest and fees. A Buy Here Pay Here loan is not only going to be more expensive, but it will often be for a longer term. You could find yourself paying 17 percent on a loan for seven years.
Guaranteed Financing loans are more competitive because you can choose your bank, as mentioned above. That also means you're more likely to get a low-interest rate and fair terms.
Guaranteed Financing Loans Provide Financial Protection
A bank will not give you a loan that you just can't afford, but a BHPH lot just might. With a guaranteed loan, you have the peace of mind of knowing that you've made a solid financial choice, rather than saddling yourself with debt that you may not be able to pay back later on.
As you can see, though a BHPH loan initially seems similar to Guaranteed Financing, it has a number of disadvantages. Instead of going to a BHPH lot, you can discuss your Guaranteed Financing Options at Hometown Chevrolet. Stop by and see us to get started.