Pros and Cons of Becoming a Buy Here Pay Here Car Dealer
What are the PROS for becoming a Buy Here, Pay Here car dealer?
- Low Start-up Costs: Buy here pay here dealerships require less capital to get started than traditional car dealerships because BHPH dealers usually hold later models and lower cost inventory. This allows entrepreneurs to get into the business with less risk.
- High Profit Margins on Loans: Buy here pay here dealerships typically make higher profits than traditional dealerships. This is because they can charge higher interest rates and fees on car loans..
- Access to Subprime Customers: Buy here pay here dealerships are able to offer car loans to a pool of customers who would not otherwise be able to receive financing from traditional dealerships. This allows them to expand their customer base and increase profits.
- Flexibility: Buy here pay here dealerships are able to set their own terms for car loans and have more control over the loan process than traditional dealerships. This allows them to better serve their customers and offer more competitive rates.
What are the CONS for becoming a Buy Here, Pay Here car dealer?
- High Risk: Buy Here Pay Here operations are considered high risk because they extend credit to customers with minimal background checks. This means that customers with a poor credit history or no credit history at all are more likely to be approved for a loan.
- High Up Front Cost of Inventory: The cost of acquiring inventory can be high, as it requires you to pay the full purchase price upfront. Floor planning you vehicles won’t be possible. Many of the vehicles will be late model and higher mileage which may require more repair costs.
- High Collection Risk: Buy Here Pay Here dealers are exposed to a high collection risk since customers are typically unable to make their payments on time. More time and energy is required to work the loans.
- Low Profit Margins Up Front: Due to the high risk and up front cost associated with Buy Here Pay Here operations, profit margins tend to be low for dealers unless loans carry through to term.
- Regulatory Requirements: Buy Here Pay Here dealers are also subject to various state and federal regulations that must be complied with. Finance contracts and additional forms should be from trusted sources.