Buy Here Pay Here business model & start up advice?

David Brown

Hello everyone, 

my name is Dave & I currently own two used car dealerships in Ny. I am hoping an experienced buy here pay here dealer may be generous enough to run down the business model and how a buy here pay here truly works as there is a huge amount of varying information. I will give you a run down of what I do now, what I have researched and questions I have that I would value very much if I could get some insight on.

Currently I have two dealerships with about 120 units total. We deal primary with sub prime clientele even though I have a passion for slightly higher end exotic and sports cars. Although my dream would be to sell nothing but higher end vehicles under factory warranty, I have spoken with a substantial amount of dealers with such inventory that are making much LESS money then I currently do on a cheaper, lower end vehicles.

Currently, we deal primarily with the same 7-8 non recourse indirect lenders with no back end money made. We try to make a profit of $2,500 per car and can get to almost $7000-8000 per unit on trucks, but some of these lenders are literally getting away with murder. I know some of the ceo's of the lenders one of which simply has a 10 million dollar line of credit at 3% and lends to sub prime clients at 24.99%! In addition to making 22%, they are also making 12% off of the dealer!!

So down to it... I am looking to get into a buy here pay here lot, but am afraid with only $600,000 cash and a $400,000 floor plan, I will fall substantially short to prosper in the way I would like. I also have read that once you get into a buy here pay here, you are no longer in the auto business, you are in the finance business as it is a full time job and a half to run.

Are buy here pay heres really holding the paper themselves?

I've heard of companies buying the notes after 2 months of on time payments for 80%, is that true? If so, what kind of documentation do they require in order to fund?

What happens when a vehicle is reposessed? Most companies will get a judgement against you? Do they ever collect or do they typically take the loss?

In Ny, I've heard when a vehicle is reposessed, you can not simply resell the vehicle, rather you need to bring it to the auction? Anyone have insight on that?

I like the idea of gps units as well as starter interupters, but ive read that legally, the client needs to be aware of the location of the units which in my opinion, defeats the purpose of the unit all togeather? For a few of my current finance companies, we install starter interupters in which the customer needs to enter a code once per month to enable the car to start. I often see these taken out of the car as quick as a week after delivery.

Do most buy here pay here's have a finance license to charge interest or do they simply mark the car up from the beginning and advertise "no interest"?

How do buy here pay here's manage HUNDREDS of weekly payments?  

I love the idea of having a huge amount of weekly cash flow, but it does sound incredibly stressful. Is it worth it or am I better off expanding my sub prime indirect lending dealerships and avoiding all of the complications associated with a BHPH?


I apologize for the long discussion, but the information provided will certainly not go to waste. Any other incite on the BHPH business would be greatly appreciated. 


Jay Luke

can i ask which of these 7-8 indirect lenders you have that are non-recourse?

Kory  Atteyah

I'm with Jay, I would be interested in the list of non- recourse indirect lenders. Sorry that I cant help with your question

Sam Trevino

Here are some thoughts:

One of your questions would likely be better answered by an attorney specific to your legal jurisdiction (state). I am not an attorney, but if I were in your situation I would ask my attorney the following question:

1. Can a provision be included in the contract be included that tampering, turning off, removing, or otherwise disabling any GPS or starter interrupters would be an incurable default of the contract by the buyer.  (Now it doesn't matter if the buyer knows where the GPS and starter interrupter is located; if they mess with it you immediately repo the car). 

The rest are business decision inquires. For those inquiries I would say the following: You have a working business model that actually makes you money. You could continue to "double down" and expand your business based on that functioning business model, or you could go learn a whole new business model (the buy here pay here - BHPH). You appropriately recognize a threat in time commitment and time conflict between your current business and starting a new venture that operates differently. You have options: 1) Continue as you are and do not expand your business at all 2) Expand you business following your current model 3) Try to open a BHPH operation while operating your existing business (you will almost certainly fail) 4) Don't do number 3 without modifications. 5) Do something else I didn't imagine.

First hire a Location Manager (to run your current business location). This person will be well compensated, but should free you up to go start a new venture while mitigating risk. They should be autonomous in that you should only be contacted to handle exceptionally sensitive issues. That's called delegation. Delegate the entire business to free up your time to start a new business. This will limit risk and burnout. It goes without saying you should also be able to trust the person you hire with your life; their credibility and loyalty should not be questionable. Then go concentrate on starting up your BHPH business. Set parameters on how much you will invest (highly recommend keeping this number low in the beginning - say around $20,000 to $30,000 based on your funds) in your BHPH upfront with a time frame / dead line for profitability. If the BHPH doesn't perform well, or fails you can exit at your predetermined decision to limit loss. Before you even consider spending a dime on a BHPH business watch YouTube videos on others who run similar businesses. Contact BHPH's operators in your state and network with them directly. See if they will mentor you, and offer to do the same for them on your business model.

Hopefully that was helpful in some way. 

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