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How to Start a Buy Here Pay Here Car Lot

Do you want to start a buy here pay here car lot business? If YES, here is a guide on how to start a buy here pay here car lot with no money and no experience.

The Buy Here Pay Here market has continued to grow because of the role it plays in the society. According to already carried out research, 9.18% of all vehicle financing in 2010, and 14.38% of used vehicle financing were done by BHPH dealers.

Subsequently, those numbers grew to 9.8% of all vehicles and 16.62% of used vehicles financed. As the economy continues to struggle, this growth trend continued in 2012 and beyond. Growth in this market has increased the number of entrepreneurs looking into the by here pay here market.

In fact, most of these intending entrepreneurs are franchise dealers looking to add a BHPH operation to their existing business. This list of interested dealers also includes independent retail dealerships looking to expand the financing options they offer their customers.

How Do Buy Here Pay Here Car Dealerships Work?

Buy here pay here (BHPH) car lots work differently from traditional dealerships because the dealers at BHPH lots are the lenders. BHPH lots often get a bad reputation based on some outdated notions on their mode of operation, but they can also be a welcome option for people who struggle with bad credit and may not be offered a car loan.

For a lot of people, especially low income earners, credit issues might make it difficult to purchase a vehicle. These people may consider shopping at a buy here, pay here lot since the requirements are typically less strict when it comes to approving customers for credit.

Starting a buy here, pay here dealership can be a lucrative business, since your target market will be consumers who expect to pay higher interest rates.

How Much Profit Margin Do Buy Here Pay Here Car Lot Make?

Although BHPH dealers hate to open their books, profit margins average nearly 40%, according to a trade group, the National Alliance of Buy Here Pay Here Dealers.

That’s twice what new-car dealers make. In addition, many of the lots require customers to return once or twice a month to make loan payments in cash — hence the name Buy Here Pay Here. That is they get to make payments for the car where they bought them from.

A key reason for the industry’s growth in tough times is that dealers always find a way to come out ahead whether or not customers keep up with their loan payments. In this business, about 1 in 4 buyers default. In the real estate and credit card industries, that would be bad news.

In the world of Buy Here Pay Here, it’s just another avenue for profit. This is because the car can be repossessed and put back on the lot for sale in short order. A new buyer makes a down payment, takes on a high-interest loan, takes the car away, and the cycle starts anew.

Provided they don’t get wrecked, these recycled vehicles just keep paying dividends. At some dealerships, cars have been sold and resold over and over — three, four, even eight times apiece. Default and repossession are so central to the business that many dealers plan on both.

They equip cars with hidden GPS devices and remote-control ignition blockers to make the repo man’s work easier. Many pursue their customers for years after they’ve seized and resold the vehicles. Some keep lawyers on staff, filing dozens of lawsuits each month to recoup unpaid balances and garnish debtors’ wages.

Dealers say they offer a valuable service, giving people with bad credit access to transportation so they can provide for their families.

They contend that the risks inherent in the business are daunting and that profits can be elusive. After each sale, they watch their investment drive off — “money on the street,” as dealers put it — and they can only hope the customer doesn’t skip town or go broke.

How to Determine If This Buy Here Pay Here Car Business is For You

Here are 5 areas you need to consider as you determine whether the Buy Here Pay Here business is right for you

i. Commitment

Commitment is critical to the success of a Buy Here Pay Here dealership. The BHPH business is not necessarily the car business, it is the finance business. You have to be a very thorough person if you are going to make any headway in this business.

In traditional retail business, when you finance a vehicle, it is someone else’s responsibility to collect that loan. That in fact is your job and effective collections are the key to success in BHPH.

You must commit the time and resources to learn about the BHPH business. There are numerous resources available including our own DCF Consulting Group. Commit to learning all you can, training your employees on proper operations and best practices and hire the right people to help you, if necessary.

ii. Required Capital

BHPH businesses require huge capital investments, so you need to make sure that you are ready for this. Various models of the Buy Here Pay Here business using vehicles with costs ranging anywhere from $1,000 to $15,000 have been successful in this business.

The business model you decide to adopt as far as vehicle cost will determine the amount of capital you need. Remember, you will be putting out money to replace vehicles you sell having only collected the down payment on that sale. It takes some time before you are collecting enough in payments to restock the inventory and cover your expenses.

Selling 12 cars a month that you own for $3000 after reconditioning and sell for $6995 at 12.95% APR will take just over 1 million dollars before you turn cash positive. You can get lines of credit, sell off notes along the way or use several other methods of obtaining capital but, unless you have a million dollars in the bank, you need to have that process determined before you open your doors.

iii. Your ideal Customers

The DCF market is composed of people who are ready and willing to buy, but do not qualify for traditional financing, i.e. banks, finance companies, etc. It is composed of people who have been turned down for conventional financing as well as the customers that other dealerships reject without submitting a completed application.

The market also includes customers that do not attempt to purchase a vehicle from a dealership because they know they have poor credit and do not want to be embarrassed by being turned down for financing. The average age of the DCF customer is 35 years old and they are usually in the lower middle class or working poor of the local economy.

They range from senior citizens on a fixed income to younger people working at fast food restaurants. Despite varying income levels, they typically work every day but do not have any savings. Most are commonly referred to as “blue-collar” workers.

It is likely that, whatever town or city you live in, there are people who need BHPH financing. Your market research must determine whether that market is large enough to sustain your operation. You must also consider how easy it is for those potential customers to get to your dealership.

iv. Capability of your Staff

One of the keys to success at a DCF dealership rests on the ability of the dealership’s personnel to establish a friendly relationship with the customers. Much of that will depend on the attitude they have towards their customers. If you and your staff view your customers as inferior or bad, you will have a difficult time, both in sales and collections.

Dealership personnel must be committed to the belief that over 90% of the dealership’s customers are honest and good people. The vast majority of your prospective customers are in a poor financial situation for reasons that they did not or could not control.

Family sickness, divorce, job layoffs, overspending due to “easy credit”, major casualty losses, or a total lack of financial self control are conditions that all dealership employees should and must understand.

v. Inventory

The goal of a Dealer Controlled Financing dealership is to provide basic transportation so customers can drive back and forth to work in order to earn a paycheck and for typical family errands. More expensive vehicles mean longer payment terms, resulting in more of the dealership’s money at risk for a longer period.

Longer repayment terms also increase the risk that something will happen to the vehicle or in the customers’ lives that will affect their ability to repay their obligation. Whatever price point you decide makes the most sense for your operation, you need to determine how and where you are going to find a steady stream of those vehicles.

How to Start a Buy Here Pay Here Car Lot in 7 Steps

When opening a lot, several things need to be considered. Location, personnel, training, procedures, necessary forms, inventory, advertising and much more are on the to-do list.  If you’ve been around the BHPH business before, you can probably open an operation without too much assistance as long as you have a stash of cash for inventory.

But if you’re new to this profitable niche of the automotive industry, you might need a “business in a box” solution. Here processes you will go through to start up your buy here pay here business.

1. Determine your capital for buying the initial inventory

To attract customers, you will need to have a wide selection of vehicles from which they can choose from. Consider a bank loan for purchasing the said vehicles and a location for your car lot. Check your credit score and report by visiting the credit bureaus: Equifax, Experian, and TransUnion.

2. Obtain a dealer and business license from your local Department of Revenue and Department of Motor Vehicles (DMV)

For you to be successful in this business, you have to decide if you would like an independent or franchise dealer license. If you plan to sell new and used cars, then obtain a franchise license. Obtain an independent dealer license if you plan to sell used cars only.

Depending on your state, expect the DMV to send a representative to inspect your car lot. The DMV may also request a copy of your lease, or proof or ownership of your car lot, proof of insurance, and a surety bond of at least $25,000.

3. Select an ideal car lot

Another important thing to consider when starting your BHPH business is your car lot. When choosing a property for your buy here, pay here lot, check with your local or county government to determine what zoning laws or permits are required. Consider hiring a real estate agent to assist you with locating a commercial property for your car lot.

4. Purchase the initial vehicles for your lot

Once you have gotten your finances ready and gotten your license, you can now go ahead to source for cars to buy. You can buy cars from individuals by placing ads in the paper or you can go to dealer auctions that sell cars at wholesale prices for those with dealer licenses. Bring a mechanic with you before purchasing any car to ensure they are in good shape.

5. Select your criteria for approving your customers for vehicles

Before you give out your cars to customers, you have to select a criteria you want them to fit into. I mean, you can’t give your car to just about anybody that comes along. Consider employment, living situation and monthly income.

Determine which interest rate you would like to charge for your customers to ensure you make a profit off your monthly payments. If you are unsure of how you will charge your clients, consider hiring a professional business consultant to give yo options.

6. Start marketing your business

Use sites like and to feature your cars and obtain customers that may be interested in purchasing your vehicles. Also consider creating a website to feature your cars, and allow people to fill out inquiry forms to display their interest in your vehicles.

Essential Marketing Principles for Buy-Here-Pay-Here Dealerships

The used car industry has done well in recent years – but like all markets, the space is open to disruption. How can you make sure your business will maximize its potential to grow in the face of competition from other dealerships and external challengers?

Given the current state of the market, it’s clear that buy-here-pay-here dealerships have significant opportunity to distinguish themselves by focusing their efforts on a handful of key tactics. Chief among them, your marketing will set you apart.

Whether it’s done right or wrong, few things a dealership does can have more impact on the public perception of that business than its marketing. In order to position your buy-here-pay-here dealership to thrive, you will need to immediately begin taking steps to maximize the effectiveness of your marketing.

a. Know your customer

The number one most important principle in marketing – whether you’re a car dealer or otherwise – is to know your customer.

Without knowledge of who your customer is or what they care about, your message is doomed to fall on deaf ears – that is, if you can successfully deliver it to your audience at all. So what are the important attributes of the Buy-Here-Pay-Here (BHPH) audience specifically?

  • They are female

58% of BHPH buyers are female. By contrast, the traditional car-buying demographic tends to be about 50% female.

  • They tend to be younger

On average, BHPH buyers are 39 years old. By contrast, traditional buyers are 47 years old on average.

  • They make less money

BHPH buyers average less than $50,000 in annual household income. By contrast, traditional buyers average more than $50,000.

  • They’re less likely to be part of a traditional family unit

BHPH buyers are less likely to be married (whether divorced or never married). 44% of BHPH buyers are married, versus 60% traditional car-buyers.

  • They have poor credit

This one’s obvious. Generally speaking, if someone is buying from a BHPH, it’s because their credit isn’t good enough. That is as simple as that.

b. Fight to get approval

Once you understand your audience, the next step is to craft a car dealer marketing message that will motivate buyers to visit your dealership.

Given what we know about BHPH car buyers, their number one concern is going to be around getting approved for a purchase. In fact, 59% of BHPH shoppers determine dealership financing as the first step in the car-buying process, with only 36% of traditional buyers doing the same. Towards that end, don’t offer approval. Ensure approval.

Remember, to your customers, approval isn’t what they want, it’s the annoyance that they have to deal with, the fear that hangs over them. What they want, is a car. What you’re selling is a unique solution, a car and financing all in one.

As such, your dealership should focus on guaranteed approval as its number one marketing message. So how exactly do you go about doing this? Make sure your homepage features this message in an area that all website visitors will see. Make sure the message is delivered in simple, clear, and easy-to-understand copy.

c. Get a concise and easy to navigate website

Make sure your website is structured to easily allow shoppers to find the cars they can afford and be approved for. Keep your navigation simple, and be sure to segment your inventory according to price and special offers. Remember, you’re offering approval but your customers are shopping for cars. Include shopping tools that make it easy for shoppers to find a car that has what they want and they can afford.