Buy Here Pay Here (BHPH) dealerships are unique in the automotive market as they offer in-house financing to customers who may not qualify for traditional auto loans.

Unlike franchised or independent dealerships that rely on third-party lenders, BHPH dealers act as both the seller and the lender, managing the entire financing process directly with customers.

While this model offers greater control over sales and financing, it also comes with distinct obstacles, including risk management, regulatory compliance, and maintaining strong customer relationships.

How BHPH dealers differ from traditional dealerships

BHPH dealerships cater to a specific segment of car buyers, primarily those with bad credit, no credit, or limited access to conventional financing. Because of this, their business model and operations are significantly different from those of franchise and independent dealerships.

Key distinctions:

• In-house financing – BHPH dealers finance car purchases directly, rather than through banks or credit unions.
• Flexible credit requirements – Instead of relying on credit scores, BHPH dealers focus on income verification and the customer’s ability to pay.
• Payment structure – Customers typically make weekly or bi-weekly payments directly to the dealership.
• Vehicle selection – Customers often qualify for a car first, then choose from available inventory that fits their budget.

The unique requirements of BHPH dealers

Due to their customer base, BHPH dealerships must adopt specialized business practices to mitigate potential losses.

Key considerations:

• Risk management – Strong loan underwriting and risk assessment practices are essential to reducing default rates.
• Capital investment – BHPH dealers must acquire significant upfront capital to finance both inventory and customer loans.
• Collections & repossessions – A structured collections process is needed to ensure consistent cash flow and help manage delinquencies.
• Technology & software – Specialized loan servicing and accounting systems are necessary for tracking payments, customer accounts, and repossessions.
• Inventory management – All vehicles should be reliable, affordable, and within a price range suitable for BHPH financing.

What it takes to start a BHPH dealership

Opening a BHPH dealership requires substantial financial investment as they generally don’t rely on outside financing. Because BHPH dealers fund their loans, capital management is a top priority.

Estimated startup costs:

• Inventory costs – Most BHPH dealers spend between $3,000 and $15,000 per vehicle they acquire, depending on their business model.
• Licensing & bonds – Dealer licenses and surety bonds can be upwards of $25,000, depending on the state.
• Location expenses – Monthly rent may range from $1,000 to $10,000, depending on the market.
• Software & systems – Loan servicing, underwriting, and accounting software can cost several thousand dollars.
• Insurance & compliance fees – Legal fees, compliance audits, and regulatory expenses are necessary to ensure legal compliance.

How BHPH dealerships navigate regulations

As sellers and lenders, BHPH dealers have to comply with strict regulations. Understanding local, state, and federal lending laws is crucial to avoiding legal issues and maintaining customer trust.

Key regulatory considerations:

• Licensing requirements – Some states require special financing licenses beyond the standard dealership permits.
• Consumer protection laws – Dealers must comply with laws requiring:
  • Express warranties (e.g., 30-day or 1,000-mile coverage)
  • Reasonable market value disclosures on vehicles
  • Restrictions on requiring in-person payments
  • Limitations on tracking devices and starter interrupt technology
• Financial oversight – As in-house lenders, BHPH dealers also follow strict lending and repossession laws to protect consumers.

Failure to comply with these laws can lead to fines, lawsuits, and potential business shutdowns. Staying updated on regulations and best practices is essential for long-term success.

BHPH vs. franchise and independent dealerships

BHPH dealerships operate differently from franchise and independent dealers, with each having its own set of challenges and benefits.

Target customer base

• BHPH dealerships – Primarily serve credit-challenged buyers who may not qualify for traditional auto loans. Approval is based on income verification, not credit scores.
• Franchise dealerships – Cater to both prime and subprime buyers, offering manufacturer incentives, leasing options, and traditional financing.
• Independent dealerships – Serve a mix of customers depending on their financing partnerships, but generally work with credit unions and banks for loan approvals.

Inventory selection

• BHPH dealerships – Focus on used vehicles at lower price points ($1,000 - $15,000), selecting inventory based on affordability and ease of financing.
• Franchise dealerships – Sell new and certified pre-owned vehicles, with inventory determined by manufacturer agreements.
• Independent dealerships – Offer a diverse mix of used vehicles from multiple brands, often prioritizing higher-end used cars compared to BHPH lots.

Payment structure

• BHPH dealerships – Weekly or bi-weekly payments are made directly to the dealership. Many accept cash, money orders, or electronic transfers.
• Franchise dealerships – Monthly payments are handled through third-party lenders.
• Independent dealerships – Similar to franchise dealerships, monthly payments are processed by external lenders.

Risk management & profitability

• BHPH dealerships – High financial risk, as they finance loans in-house and bear the burden of loan defaults. Profitability depends on effective underwriting, collections, and inventory selection.
• Franchise dealerships – Lower risk since they rely on external lenders, with manufacturer-backed incentives helping to drive sales.
• Independent dealerships – Moderate risk, as they have more flexibility in pricing and financing options but depend on third-party lending partners.

Financing options outside the in-house model

BHPH dealerships fill a gap in the auto market, providing financing solutions for customers who might otherwise struggle to buy a car. While this business model presents opportunities for higher profit margins, it also requires careful operation.

BHPH dealerships wanting to keep risk low while expanding their financing options should join Credit Acceptance’s dealership network.