Auto financing is critical to helping dealerships serve their customers, but dealership requirements for customer financing can vary significantly. Independent, franchise, and Buy Here Pay Here (BHPH) dealerships all have different financing approaches, approval processes, and customer eligibility criteria.

Understanding these differences can help your dealership structure its financing programs effectively to attract the right buyers — all while maintaining strong financial stability.

Financing models for different dealership types

Each dealership category — independent, franchise, and BHPH — competes for customers by offering different financing solutions tailored to its business model.

Independent dealerships: flexible and versatile

Independent dealerships operate with greater flexibility in financing, often partnering with local banks, credit unions, and specialized auto finance companies. These dealerships:

• Offer higher-interest loans, especially for used vehicles, making financing accessible to customers with varying credit histories
• Provide in-house financing options, giving them more control over approval processes and loan terms
• Work with subprime lenders to assist customers with lower credit scores

Because independent dealers aren’t tied to a manufacturer, they must carefully select financing partners that align with their customer base and business goals.

Franchise dealerships: manufacturer-backed for prime borrowers

Franchise dealerships benefit from manufacturer support, often offering exclusive incentives such as:

• Low or zero-percent APR for qualified buyers
• Cash rebates and promotional financing programs to attract customers
• Access to multiple national lenders, providing competitive loan rates

While franchise dealerships offer the best financing terms for prime credit customers, they may be less suited to serve non-prime and subprime buyers with less-than-perfect credit.

BHPH dealerships: mostly handled in-house

BHPH dealerships serve customers who may struggle to secure loans through traditional lenders. Their financing model is unique because:

• They act as both the seller and the lender, eliminating the need for third-party financing.
• They have more lenient approval requirements, often prioritizing proof of income and employment over credit history.
• They offer quick approvals, making car buying more accessible for those with no or low credit scores.

While BHPH financing helps credit-challenged buyers get approved, it often has higher interest rates and larger down payment requirements to offset the dealership's risk. The dealership also traditionally doesn’t have many external partners.

Requirements for customers across different dealership types

Below are the factors most dealerships consider before offering their customers financing.

1. Credit score

• Independent dealerships: More flexible because they often work with subprime lenders to approve buyers with lower credit scores
• Franchise dealerships: Typically require higher credit scores (660+) for prime financing
• BHPH dealerships: Rarely conduct credit checks, instead focusing on income verification and ability to pay

2. Proof of income/employment

• Independent dealerships: Require pay stubs or bank statements to verify income
• Franchise dealerships: May require tax returns or employment history for loan approvals
• BHPH dealerships: Often use a "Your Job Is Your Credit" model, approving buyers primarily based on income stability rather than credit scores

3. Down payment

• Independent dealerships: Down payment amounts vary, depending on lender terms
• Franchise dealerships: Often require larger down payments, especially for non-prime buyers
• BHPH dealerships: Typically require higher down payments to reduce risk, but offer weekly or bi-weekly payment options to fit customer budgets

4. Debt-to-income ratio (DTI)

• Independent dealerships: Allow higher DTI ratios for subprime customers
• Franchise dealerships: Have stricter DTI requirements, ensuring buyers can comfortably afford loan payments
• BHPH dealerships: Typically don’t have strict DTI guidelines, instead focusing on whether the customer can afford the scheduled payments

How dealerships compete through financing

Each dealership type employs different financing strategies to attract and retain customers.

1. Credit reporting and customer credit building

Some BHPH and independent dealerships report on-time payments to credit bureaus, helping customers rebuild their credit history. Franchise dealers working with subprime lenders can also offer credit-building auto financing.

2. Payment flexibility

• BHPH dealerships often offer weekly or bi-weekly payments to align with customer paychecks.
• Franchise dealerships provide traditional monthly financing structures, offering stability for customers with prime credit.

3. Interest rate competitiveness

• Franchise dealers offer lower rates for customers with strong credit scores.
• Independent dealerships work with multiple lenders to secure varied interest rates.
• BHPH dealers charge higher interest rates to compensate for higher-risk borrowers.

4. Fast and simple approval processes

• Franchise dealerships require lender approvals, often taking longer than independent or BHPH dealers.
• Independent dealers working with multiple lenders may have quicker approvals based on lender partnerships.
• BHPH dealerships provide instant approvals, making them an attractive option for customers who need immediate financing.

The current market and financing trends

BHPH dealerships are experiencing growth due to their ability to finance credit-challenged customers while traditional lenders tighten credit approvals.

Meanwhile, franchise and independent dealers focusing on higher-priced vehicles face obstacles, while those selling cars under $15,000 are currently experiencing more success.

This shift highlights the importance of flexible financing solutions accommodating customers in different financial situations. If you can’t work with subprime customers, now is the time to explore your options.

Broadening your financing model

Each dealership type — independent, franchise, and BHPH — requires a tailored financing approach to remain competitive.

However, expanding your customer base through a relationship with the right financing company can increase approvals and drive sales and profitability over the long term. For assistance, join the Credit Acceptance dealer network today.