Affordability is one of the notable advantages of used motorcycles in Salt Lake City, Holladay, or Cottonwood Heights over their brand-new counterparts. However, buying one with cash is not always possible since many of us do not have thousands of dollars lying around for a bike.
Fortunately, many dealers offer in-house financing called “buy here, pay here.” It is a convenient option, for you no longer have to rely on a third party to facilitate your motorcycle purchase. If you badly need a vehicle and have poor credit, it can be a lifesaver.
Like other financial products, a buy here, pay here loan is not without drawbacks. Before you take out one, learn about its usual disadvantages to determine whether it can work for you.
It Comes with Above-the-market Interest
Buy here, pay here lenders, which are the dealers themselves, absorb a lot of risk in the deal. They serve the least creditworthy motorcycle buyers, which is why they charge interest rates above the market to compensate for the prospect of not getting paid by thousands of dollars.
Yes, a buy here, pay here lender reserves the right to take the vehicle when a borrower defaults on the loan, but the repossession process can be costly.
As the borrower, make sure you crunch the numbers before you sign off the papers. Know the total dollar amount of your monthly interest, so you can do the math more easily and compare other used motorcycle loans on the market.
It Might Not Improve Your Credit
The buy here, pay here qualification process sometimes does not involve a credit check. Dealers offering these secured loans might perform a soft inquiry to vet customers, but they do not look for stellar credit.
If your FICO scores are less than 579, the mechanics of a buy here, pay here loan is good news. The bad news is that your payments might not appear on your credit reports.
Not all buy here, pay here lenders report to the credit bureaus. If you do business with one of them, your debt might not be factored into your future credit score calculations. But punctual payment would not help build your credit over time.
It Might Require Face-to-face Payment
Some buy here, pay here loans can be repaid only at dealerships. Yes, in this day and age, you might not be allowed to pay online or send a check. The terms of your loan can require you to drop by to the dealership once or twice a week to make a payment.
It Can Involve Tracking Device Installation
The approval of your buy here, pay here loan can be contingent on your willingness to install a tracking device in your vehicle. As a significant credit risk, you might be viewed by your lender as a flight risk. More than 60% of in-house motorcycle financiers observe this practice to recover collateral with less stress.
Fortunately, a buy here, pay here loan is arguably the motorcycle financing option of last resort. You can explore different ways, like using a co-signer, to make up for your lack of excellent credit and qualify for a more favorable loan.