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In-House Financing & Buy Here Pay Here: What You Need to Know Before Signing
In-house financing and Buy Here Pay Here (BHPH) dealerships promise easy approval with no credit check — but these loans often come with extreme interest rates, inflated vehicle prices, and predatory terms that cost consumers thousands. Here is what every car buyer in Sioux Falls, SD should understand before walking into a BHPH lot.
What Is In-House Financing?
In-house financing, commonly called "Buy Here Pay Here" (BHPH), is a type of auto financing where the dealership itself acts as the lender. Instead of working with a bank, credit union, or third-party finance company, you borrow directly from the dealer who sold you the car. The dealership sets the interest rate, the loan terms, and the payment schedule — and they also handle collections if you fall behind.
BHPH lots market heavily to buyers who believe they have no other options: people with bad credit, no credit history, recent bankruptcy, or prior repossessions. The pitch is simple and appealing — "Everyone is approved! No credit check needed!" — but the reality behind that promise is far more costly than most consumers realize.
Unlike traditional dealership financing, where the dealer submits your application to multiple outside lenders who compete for your loan, in-house financing removes that competition entirely. The dealer has no incentive to offer you a fair rate because they are the only lender at the table. This single-lender dynamic is the root cause of nearly every problem associated with BHPH dealerships.
18–30%+
Typical BHPH APR
50–100%
Vehicle Price Markup
30–50%
Average Default Rate
2–3x
Times Vehicles Resold
How Buy Here Pay Here Actually Works
Understanding the BHPH business model is essential to understanding why it is so problematic. The process typically works like this:
- The dealer purchases low-cost wholesale vehicles — often high-mileage cars from auctions for $2,000 to $5,000 — and performs only minimal reconditioning before placing them on the lot.
- The sticker price is inflated well above market value. A vehicle worth $5,000 at fair market value may be listed at $10,000 to $15,000. The dealer knows that BHPH customers rarely comparison-shop because they believe no one else will approve them.
- The dealer approves nearly everyone because the loan terms are structured in the dealer's favor. With 18% to 30%+ APR and a large down payment requirement (often $1,000 to $3,000), the dealer recoups much of their wholesale cost before you even drive off the lot.
- Payments are structured as weekly or biweekly in-person visits to the dealership. This is intentional — it allows the dealer to monitor the vehicle (which often has a GPS tracker installed), maintain pressure on the borrower, and repossess immediately if a payment is late.
- If the borrower defaults — and 30% to 50% do — the dealer repossesses the vehicle and resells it to the next buyer, often two or three times. Each cycle generates a new down payment and a new stream of high-interest payments. The same $3,000 wholesale car can generate $30,000 or more in total revenue across multiple buyers.
This cycle — buy cheap, sell high, repossess, repeat — is the core profit model of in-house financing. The dealer actually profits more when borrowers default than when they pay off the loan successfully.
Important Disclosure
Frankman Motor Company does not offer in-house financing or Buy Here Pay Here lending. This article is provided as a free educational resource to help consumers in Sioux Falls and surrounding South Dakota communities understand the risks of BHPH dealerships and discover better alternatives for financing a used car.
The Biggest Problems with In-House Financing
While in-house financing may seem like a convenient option for buyers with credit challenges, the drawbacks are severe and well-documented. Here are the most common problems consumers face at BHPH dealerships.
Extreme Interest Rates
BHPH loans typically carry APRs between 18% and 30% or higher — sometimes exceeding state usury limits by disguising interest as fees. For comparison, even subprime borrowers with scores below 580 can often secure rates of 10% to 15% through a traditional dealer working with outside lenders.
Massively Inflated Prices
BHPH dealers routinely mark up vehicle prices 50% to 100% or more above fair market value. A car with a Kelley Blue Book value of $6,000 might be listed at $10,000 to $12,000. The loan-to-value ratio on BHPH deals frequently reaches 150% to 300%, meaning you owe far more than the vehicle is worth from day one.
GPS Tracking & Kill Switches
Many BHPH dealers install GPS tracking devices and starter interrupt (kill switch) systems on every vehicle they sell. These devices allow the dealer to track your location at all times and remotely disable your vehicle if you are even one day late on a payment — even while you are driving, at work, or in an emergency situation.
Aggressive Repossession
With default rates between 30% and 50%, BHPH dealers are built for repossession. Many will repossess after a single missed or late payment. The vehicle is then resold to the next buyer — generating another down payment and loan — while the original buyer loses their down payment, all payments made, and any equity entirely.
No Credit Bureau Reporting
This is one of the most damaging aspects of BHPH loans. Most in-house finance dealers do not report your payment history to the major credit bureaus (Equifax, Experian, TransUnion). That means even if you make every single payment on time for the full loan term, your credit score will not improve at all. You gain zero benefit from months or years of on-time payments.
Poor Vehicle Quality
BHPH inventory is typically sourced from wholesale auctions at rock-bottom prices. These vehicles often have high mileage, undisclosed mechanical problems, and receive only minimal reconditioning before being placed on the lot. Many BHPH lots do not perform comprehensive mechanical inspections, and sold-as-is disclaimers are standard practice.
Hidden Fees & Mandatory Add-Ons
Expect excessive documentation fees, GPS device installation fees ($300 to $800), mandatory — and often overpriced — extended warranties, and inflated title and registration charges. These fees are frequently rolled into the loan amount, increasing the total you pay with interest.
Limited Legal Protections
In many states, lemon law protections do not apply to BHPH transactions. Vehicles are typically sold "as-is" with no warranty whatsoever. If the engine fails the day after purchase, you are still responsible for the full loan balance — on a vehicle you can no longer drive. South Dakota has limited used car lemon law protections, making it especially important to buy from reputable dealers.
The easiest loan to get approved for is almost always the most expensive loan you will ever sign.
Red Flags to Watch For at Any Dealership
Whether you are shopping at a BHPH lot or any used car dealership, these warning signs indicate a dealer may not have your best interests in mind. If you encounter any of these, consider walking away.
- "No credit check" or "Everyone approved" advertising — This usually means you will pay for the convenience through inflated prices and extreme interest rates.
- The dealer refuses to show you the vehicle's CARFAX or history report — Reputable dealers provide vehicle history reports at no cost. If a dealer avoids this, they may be hiding accidents, salvage titles, or odometer discrepancies.
- You are pressured to sign the same day — A legitimate dealer will encourage you to take time, compare options, and get pre-approved. BHPH lots thrive on impulse decisions.
- Weekly or biweekly in-person payment requirements — This is a hallmark of BHPH operations designed to keep you under surveillance and maximize their ability to repossess quickly.
- The price on the lot is significantly above Kelley Blue Book or NADA value — Always check fair market value before agreeing to any price. A gap of 50% or more above market value is a clear sign of BHPH pricing tactics.
- The dealer mentions GPS tracking or a "payment assurance device" — This means a starter interrupt device will be installed. Your vehicle can be remotely disabled.
- No mention of credit bureau reporting — Ask directly: "Will my on-time payments be reported to all three credit bureaus?" If the answer is no or vague, your payments will not help rebuild your credit.
- High-pressure add-ons during the finance process — Mandatory GAP insurance, overpriced extended warranties, and "protection packages" that provide little actual coverage are common BHPH profit centers.
BHPH vs. Traditional Dealer Financing: A Side-by-Side Comparison
The differences between in-house financing and traditional dealer financing through outside lenders are dramatic. This table illustrates why traditional dealer financing is almost always the better choice — even for buyers with challenged credit.
| Factor | Buy Here Pay Here | Traditional Dealer (Outside Lenders) |
|---|---|---|
| Typical APR | 18% – 30%+ | 5% – 15% (varies by credit) |
| Vehicle Pricing | 50–100% above market value | Market-based pricing |
| Credit Bureau Reporting | Rarely / Never | ✓ Reported to all 3 bureaus |
| Vehicle Inspections | Minimal or none | ✓ Multi-point inspections |
| Warranty Coverage | Sold as-is (typically) | ✓ Dealer or lender warranty options |
| GPS Tracking / Kill Switch | Common | ✓ Never |
| Loan-to-Value Ratio | 150% – 300% | 80% – 120% |
| Repossession Tolerance | 1 missed/late payment | 60–90 days (varies by lender) |
| Payment Method | In-person weekly/biweekly | ✓ Online, auto-pay, or mail |
| Lender Competition | Dealer is the only lender | ✓ Multiple lenders compete for your loan |
| Vehicle History Reports | Rarely provided | ✓ Free CARFAX with every vehicle |
The Real Cost: A Practical Example
To illustrate just how expensive in-house financing can be, consider this real-world comparison for a used vehicle with a fair market value of $10,000.
At a BHPH dealer: The vehicle is listed at $16,500 (65% markup). With a $2,000 down payment, you finance $14,500 at 24% APR for 48 months. Your monthly payment is approximately $471, and the total amount paid over the life of the loan is $24,608 — plus the $2,000 down payment, for a grand total of $26,608 for a car worth $10,000. And your credit score does not improve because payments are not reported.
At a traditional dealer with subprime lending: The same $10,000 vehicle is priced at market value. With a $2,000 down payment, you finance $8,000 at 12% APR for 48 months. Your monthly payment is approximately $211, and the total amount paid is $12,128 — plus the $2,000 down payment, for a grand total of $14,128. Your on-time payments are reported to all three credit bureaus, actively rebuilding your credit for future loans.
The difference? The BHPH loan costs $12,480 more for the exact same vehicle — and does nothing to help your credit score. That extra money could cover a year of car insurance, a full set of tires, regular maintenance, and still leave thousands in your pocket.
Better Alternatives to In-House Financing
If you have bad credit, no credit, or a difficult financial history, you still have options that are far better than BHPH. Here are four alternatives that every car buyer should explore before considering in-house financing.
Credit Union "Second Chance" Auto Loans
Many credit unions offer programs specifically designed for borrowers rebuilding their credit. These programs typically offer APRs between 8% and 16% — far below BHPH rates — and always report payments to credit bureaus. Check with local South Dakota credit unions about their fresh-start auto loan programs.
Subprime Lending Through Traditional Dealers
Dealerships like Frankman Motor Company work with a network of outside lenders that includes subprime specialists. These lenders serve buyers with credit scores as low as the 400s and always report to credit bureaus. Because the dealer shops your application to multiple lenders, you get competitive rates instead of a single take-it-or-leave-it offer.
Get Pre-Approved Before You Shop
Getting pre-approved through a bank, credit union, or dealership before you set foot on a lot gives you negotiating power and a clear budget. It also prevents BHPH dealers from pressuring you with their only option. A pre-approval takes minutes and a soft inquiry will not hurt your credit score.
Build Credit First with a Secured Card
If your credit score is extremely low, consider spending 6 to 12 months building credit with a secured credit card before purchasing a vehicle. A secured card with a $200 to $500 deposit, used responsibly with on-time payments, can raise your score enough to qualify for traditional auto financing at dramatically better rates.
How Frankman Motor Company Does It Differently
Frankman Motor Company in Sioux Falls, SD has never offered in-house financing and never will. Instead, our finance team — led by Finance Director Kevin Marlow and Finance Manager Nate Russell — works with a network of trusted outside lenders to find the best possible loan terms for every customer, regardless of credit situation.
Here is what that means for you as a buyer:
- Multiple lenders compete for your loan — Instead of one take-it-or-leave-it offer, we submit your application to several lenders and present you with the best available rate and terms.
- Fair, market-based vehicle pricing — Our prices are based on real-market comparisons using current data. Every vehicle comes with a free CARFAX report and OEM window sticker so you can verify its history and original options.
- All credit types welcome — Our lender network includes subprime specialists who work with buyers recovering from bankruptcy, repossession, or limited credit history. We encourage everyone to apply.
- Payments reported to all three credit bureaus — Every loan through our lender network reports your payment history, helping you actively rebuild your credit with every on-time payment.
- No GPS trackers. No kill switches. No surprises. — We treat our customers with respect. Our vehicles are yours when you drive them off the lot.
- Comprehensive vehicle inspections — Every vehicle undergoes a rigorous multi-point inspection at our on-site service center before it goes on the lot. Qualifying vehicles are backed by our Frankman Preferred Certified warranty.
Frequently Asked Questions
With in-house financing (Buy Here Pay Here), the dealership itself is the lender. They set the interest rate, terms, and payment schedule with no competition from other lenders. With traditional dealer financing, the dealership submits your application to a network of outside lenders — banks, credit unions, and finance companies — who compete for your loan. This competition typically results in lower rates, fairer terms, and mandatory credit bureau reporting.
Most do not. The majority of BHPH dealers do not report payment history to Equifax, Experian, or TransUnion. This means even years of on-time payments will not improve your credit score. If rebuilding credit is important to you — and it should be — always confirm in writing that your lender reports to all three major credit bureaus before signing any loan.
Absolutely. Many traditional dealerships, including Frankman Motor Company, work with subprime lenders who specialize in financing buyers with credit scores in the 400s and 500s. Credit unions also offer "second chance" auto loan programs with much lower rates than BHPH lots. Getting pre-approved at a credit union or through a dealership's multi-lender network is almost always a better option than in-house financing.
GPS tracking devices and starter interrupt systems allow BHPH dealers to locate and remotely disable vehicles if the borrower misses or is late on a payment. Because BHPH default rates run between 30% and 50%, these devices are a critical part of the dealer's repossession strategy. Reputable dealers who finance through outside lenders do not install these devices.
Interest rates for subprime borrowers (credit scores below 580) through traditional dealer financing typically range from 10% to 18% APR, depending on the specific score, down payment amount, vehicle age, and lender. While these rates are higher than prime rates, they are significantly lower than the 18% to 30%+ APR commonly charged by BHPH dealers — and the payments are reported to credit bureaus to help rebuild your score.
No. Frankman Motor Company does not offer in-house financing or Buy Here Pay Here lending. Instead, our finance team works with a network of trusted outside lenders — including subprime specialists — to find the best possible loan terms for every customer regardless of credit situation. This means competitive rates, credit bureau reporting, and no GPS trackers or kill switches.
Common signs include: "No credit check" or "Everyone approved" advertising, requirements for weekly or biweekly in-person payments, no mention of outside lenders or banks, prices significantly above Kelley Blue Book or NADA values, refusal to provide CARFAX or vehicle history reports, and mentions of GPS tracking or "payment assurance devices." If the dealer is both the seller and the lender, it is a BHPH operation.
First, check your credit score for free through annualcreditreport.com and dispute any errors. Second, get pre-approved through a credit union or a dealership that works with multiple lenders — this gives you a baseline rate to compare. Third, research the fair market value of any vehicle you are considering using Kelley Blue Book or NADA Guides. Fourth, ask the lender whether they report to all three credit bureaus. Taking these steps before you shop puts you in a much stronger position and helps you avoid predatory BHPH deals.
Finance Team
Sales Hours
Mon–Sat: 8:30am–6pm
Sun: Closed
Location
26874 SD Hwy 11
Sioux Falls, SD 57108
Skip the BHPH Lot — Get Real Financing
You have better options than in-house financing. Apply online at Frankman Motor Company and let our finance team match you with a lender who offers fair rates, reports to credit bureaus, and treats you with respect.