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Alternative Financing for Auto Lots: Credit Lines and Auto Note Sales

The used car lot model of Buy here pay here has been in existance for over 50 years.  The model goes like this: the car lot itself offers its own inhouse financing as an alternative to traditional bank lenders.  Typically, their consumer is a buyer with either no credit at all, or less than satisfactory credit that prevents banks from lending to them.

The biggest issues that Buy Here Pay Here dealers face is access to capital or credit lines.  Outlined below are two popular ways for car lots to leverage their credit to access capital to expand or issue new loans.

Credit Lines:  With access to secured loans and rolling credit lines, buy here pay here lots now have the ability to expand their car offerings or feel more comfortable extending credit to a new car buyer.  Fees can be relatively low, from 2% on smaller lines and going up from there for larger credit lines for car lots or advances.

Sell Auto Notes:  Typically, Buy Here Pay Here lots are working with their own capital, or a small investment from an outside source.  Lack of capital limits what you’re able to do, whether it’s lend or access new cars.  Lot owners now have the ability to sell auto notes to investors or banks.  This is a common practice to generate an influx of cash or limit the lot owners liabilities.

When running a Buy Here Pay Here lot it’s important to keep you financing options open.  Limiting your options to access cash can leave your lot at a car deficit or a cash deficit.

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