He also intends to aggressively repossess cars from customers who fail to make timely payments. He takes out an advertisement in several local newspapers, offering “no money down” used cars to customers with bad credit. BHPH dealerships are an exception to this general rule because they provide their own lease financing themselves. The BHPH business can be especially difficult if it is geared toward subprime borrowers. He is seeking to expand his current customer base.
These types of dealerships are typically involved in the sale of heavily-used cars, and they tend to cater to customers with relatively poor credit ratings. To that end, David begins offering flexible financing terms on an in-house basis, effectively becoming a BHPH dealership. In other cases, the dealership might use dedicated lease financing companies that are not affiliated with the auto manufacturers. To seal the deal, he offers a six-month interest-free period.
As a result, these flexible loan terms can significantly threaten the dealership’s long-term profits. The benefit of this approach is that the BHPH dealership can enjoy the interest revenue associated with their leases. The majority of auto dealerships focus their attention on generating new sales; they delegate the financing portion of their business to a third-party provider. After all, the price received for the cars that they sell is stretched out over the life of the car loan. Although these measures might more readily generate new business, they can also increase the default risk of the business.
On the other hand, these dealerships may https://cars45.co.ke/listing/land_rover/discovery/1993 be prone to cash flow problems.
Buy Here Pay Here (BHPH)
p>The term “Buy Here, Pay Here (BHPH)” refers to auto dealerships in which the financing for the vehicles purchased is done in-house. To support that strategy, he even considers installing trackers and other devices onto the cars to identify them and to render them inoperable if the customers fail to pay. He has found it difficult to compete with the brand-affiliated dealerships in his local marketplace, who tend to attract his region’s more affluent customers.
In an effort to expand his revenues, David decides to focus his marketing strategy on subprime customers who may be unable to afford the financing terms offered by his larger and more traditional competitors. He does not require a preliminary credit check. In the case of dealerships affiliated with a major automotive brand, this financing might be extended by an affiliate of the manufacturer itself. BHPH dealerships have been known to offer flexible terms, such as 0% down payments, no-interest financing periods, and loans without any preliminary credit check.
David reasons that, although he will likely experience higher default rates than his competitors, he can make up for this risk by charging relatively high interest rates. David is the owner of a used car dealership.