The concept of Buy Here Pay Here (BHPH) financing at auto dealerships is simple. Generally, sales and collections both take place at the same facility. The dealer and buyer first arrange a loan in-house at the dealership. It is common to explore financing before even looking at cars, then going to look at cars with a monthly payment range in mind. After the buyer purchases the automobile (buy here), he or she then returns to the dealership to make weekly or bi-weekly payments (pay here), usually by cash or check. Some dealerships offer BHPH financing as an option, while others require it exclusively.
BHPH financing is becoming increasingly common in the auto sales industry and there are several reasons why. An auto dealership that chooses to offer BHPH financing can suddenly reach out to a brand new pool of potential auto purchasers. BHPH financing allows dealerships to sell cars to individuals with poor credit history who would not otherwise be able to purchase a vehicle. The number of consumers with poor credit has recently increased, especially with the current state of the economy and in the wake of the subprime mortgage crisis.
BHPH financing provides these consumers with several incentives to purchase vehicles. First, dealerships can report positive buyer behavior to credit reporting agencies, which is appealing to buyers with poor credit history. Such a practice also motivates purchasers to make timely payments. Second, BHPH dealerships tend to be more flexible with accepting trade-ins because it is easier to find buyers for those cars. Accepting a trade-in vehicle that other dealers might not can be a great selling point. In sum, dealerships that offer BHPH financing can gain an edge over competitors that do not
Perhaps the best aspect of BHPH financing is that it offers a great deal of flexibility – not just in payment options but also in overall management style and decisions. Because of that, a dealership can smoothly make the transition to BHPH financing. There are many resources that provide detailed information about how to set up a BHPH dealership effectively. Jim Rhoads, the president of a consulting firm that specializes in start-ups in the BHPH field, highlights some of the steps to starting and managing a successful BHPH operation. Topics include everything from understanding the business, to choosing the right BHPH software, to collection efficiency.
Once you decide to offer BHPH financing, it is important to use marketing and advertising to your advantage. BHPH financing’s best selling point is that it is easy to buy even with poor credit history. Signs that emphasize that benefit are a must have for BHPH dealerships. These signs are especially important because many people do not know what BHPH financing is. A sign as simple as one that says “WE FINANCE” may encourage buyers who have previously been turned down because of credit problems. Effective advertising allows a BHPH dealer to maximize its potential.