Author: Shaun

One of the hardest issues these days for buy here pay here lot owners is finding access to working capital or credit lines.  With more and more car owners and home owners defaulting on their loans, banks are now tightening up their credit and taking a harder look at credit the credit risk of both the dealer and the car owner.

Although the SBA has rolled out some new initiatives to help car lot owners, that cash has yet to have a good impact on sales.  Private institutions and private lending are taking a chance by offering credit lines to buy here pay here lots.  Rates can vary based on credit and some other factors.  Aside from the dealers selling auto notes or finding people to purchase auto notes from them, this seemed like a positive for lots.

Additionally, the initiative had a major flaw. Although more auto dealers became eligible for the SBA’s loan programs, the SBA does not cover “floor plan” loans, the main kind of financing used by auto dealers. A typical floor plan loan is a revolving used car lot credit line that a dealership uses to purchase vehicles. As the cars and trucks sell, the dealership pays down the loan.

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.

Let’s explore some alternative financing for buying and selling used cars.

What is a Buy Here Pay Here used car lot?

Buy here pay here dealers typically make financing available to their customers via in house funds.  Arrangments are made through the dealer and payments are made directly to the dealership or through a servicing company.  As opposed to making regularly scheduled payments to a bank or loan company, you’ll make weekly or bi-weekly payments to the dealer.  Usually these dealership only accept cash or check, knowing that the reason the customer is using this type of dealership is due to the fact that they already have less than stellar credit.  It’s possible to see interest rates in the double digits at some of these lots.

Typically, these lots often collect, process and manage payments, which can be a bit of a headache.  They’re in the business of selling cars, not banking.  Often these dealerships look to creative ways to turn their auto notes into cash by selling auto notes to a buyer.  There are plenty of buyers of auto notes spread across the country.  Many offer the dealerships the opportunity to turn the loans into cash, which is paid directly to the dealer at closing.

An surge is expected in 2012 for bankruptcies for both personal and business filings.

Tightening credit, ballooning car and house payments are both leading to an expanding bubble that will pop sooner than later for many South Florida residents.  While foreclosures start to trickle through the banking pipeline, a new wave is expected to grow in the near future.

Small auto car lots known as Buy Here Pay Here dealers are looking to capitalize on this growth by selling off their note portfolios to bigger investors.  This process is know as auto bulk sales or auto note sales.

Dealerships would normally sit and collect on these notes in a hopeful economy.  But when the tide turns in the other direction and there’s economic uncertainty, dealerships look to liquidate these liabilities and get cash in hand and sell auto notes to investors.

Dealer Capital, LLC has seen a spike in their business in the past 6 months.  With dealerships getting anxious that car owners may hit the financial wall and default on their payments, these dealerships head to auto note buyers like Dealer Capital.

If you are a buy here, pay here dealer looking to capitalize on investor interest and sell auto notes, contact Dealer Capital for a free portfolio review.

If you’re interested in learning how to sell auto notes, we’ve made a qucik reference for you so that you know exactly how the process works and to make it as easy as possible.  This will also enable an expedited sale and get you the cash that you’re looking for, as fast as possible.

The lender will almost always require the following basic info:

Account number, borrower name, contract open date, original amount financed, apr, original contract term, number of payments made/ payments remaining, payment amount, current principal balance, payment frequency, down payment, vehicle year, make, model , vin # & mileage, next payment due date, last payment made date, days past due & gross balance.

Some additional info may be required, but usually the above information is enough to get a bid so that you may sell your auto notes.

Usually, after you’ve sent your spreadsheet of auto notes to the purchaser, they will send a proposal and start the due diligence process.  This time period may vary lender to lender and will vary depending on how robust your list is.  Typically, the time period falls into the 24-48 hour window and after this time you will receive a Letter of Intent (LOI).

Once the LOI is signed by the seller, the buyer will go in and review the accounts.  This is usually the final step prior to closing when selling your auto notes.  Additional info may be gathered, such as disclosures, power of attorney for leins and a schedule of listed accounts.

Typically, the overall process to sell bulk auto notes can take anywhere from 5 days to 2 weeks. In the end you free up a lot of cash and cut down on your company’s liabilities.

We hope that you’ve found this posting- How to Sell Auto Notes was helpful.