In Buy Here Pay Here, selling the car is not the difficult part. The hard part is deciding on who and how to give credit to your customers. This is called Loan Origination and believe it or not, it is the key to success in BHPH. A good loan, good collections and a good customer all start at the time the loan is originated. In this article I will discuss the basics and give you some tips for success.
In a retail used car or new car dealership, all the customers info is gathered and packaged in such a way as to get the customer approval in the eyes of the bank or finance company where you are trying to get the loan approved. If the customer gives the bank some questionable info, your salesperson may or may not care. It is not his money and not his responsibility. In addition, all the checking and verification the banks do, has to make up for the fact that the customer is not sitting in front of them for an interview. From the dealers perspective, once the deal is paid and delivered, it really is not your concern what happens to that customer and his loan.
With BHPH loan origination, this all changes. You care deeply about time on the job, net income (not gross), time at residence, debt ratio, weekly or monthly payment the customer needs to make (affordability), and the condition of the car. You not only have to verify all this info, but look at it to make a proper credit decision. You need to sure that the customer can afford the car, the payment and that the car is reliable. If it stops running, they normally stop paying. It's not in the contract, but that is the practical effect.
So how do you do this. If you've already joined a 20 group (previous articles in this series) you are on the right track. There are also companies like "SubPrime Analytics" and "AutoZoom" that will assist you with data and help you design your loan origination. Set this up and design your systems early, before you put too many loans on the books.
Some tips...
-Use experienced loan people from the BHPH industry or a related industry.
-DO NOT let your salespeople approve loans!
-Be sure all documentation the customer is expected to bring in is real and included in the deal BEFORE the car is delivered.
-Would you loan that person the money they need to buy a car?
-You need to understand and check on your collections and loan origination every day.
-Use good software for BHPH to deliver and collect the debt.
-Get experienced BHPH help to set up this aspect of your business.
-Do it right the first time.
If you do a good job at this phase of the set up and running of your operation, the rest will fall into place.
More to come.
Charles Pompey is the owner of DigAps.com and Car-Lotta Credit.
DigAps.com... Comprehensive Web Sites and Internet Merchandising ONLY for Buy Here Pay Here dealers. Charley builds results oriented BHPH web sites, improves existing web site performance, manages PPC programs, does advertising consulting, speaks to 20 groups, dealer groups, and is available for individual consulting and speaking engagements. DigAps.com will get you additional credit applications, and sales, from your website in the first 30 days!
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