When deciding which lenders your dealership should sign up with it is necessary to determine what type of special finance you wish to do.
Buy Here Pay Here
This was the only option for car dealers ten years ago. Times have changed. Customers now have choices. They will not always settle for the inventory available at buy here pay here lots. Disadvantages of buy here pay here lots:
- High mileage low cost cars
- Special inventory
- Little, if any, back end. Many cars are not eligible for a warranty.
- Negative CSI - resulting in lost repeat business and referrals.
- Having to collect receivables
Non Recourse Lenders
Today there are countless special finance lenders, most of which are non-recourse. Some of the many advantages in using non-recourse lenders are:
- Sell out of existing inventory - including NEW cars and trucks
- Receive all monies at time of funding (net of lender fees and discounts)
- Opportunity to sell your own back-end products
- Some lenders pay reserve
- Maintain CSI consistent with the reputation of the dealership.
- Gain a customer for life. This leads to future business and great referrals.
The special finance market has grown rapidly. To capitalize on every deal you need the right lenders. Which lenders do you need? Here are the basics to look for:
Stability: How long has the lender been around? Do they have dealer references?
Buying criteria: There are many lenders that do the same thing. You should look for lenders that buy different types of customers, including First Time Buyers. You should have a lender for every customer niche.
Advance: An important aspect in selecting a lender is how much they advance (based on value) and their fees and discount. There is no basic rule for discounting. There are some lenders that discount as high as 40% and others that charge no discount and pay a reserve.
Terms: The types of vehicles they will finance. You do not want many lenders that require a special inventory. In fact, the best lenders encourage late model, low mileage cars. Many of the lenders have similar interest rates but vary greatly on term. Look for lenders with generous terms.
Back-end: Does the lender allow you to sell your own back end products? Try to find a lender that will and also has a high maximum loan to value.
Funding: You should work with lenders that fund quickly. An important part of quick funding is having a clean deal. If you notice a lender's funding time has increased dramatically, be cautious. The lender may be short of funds. Lenders that verify employment, income and residence prior to sending you an approval generally fund more quickly; however, they also take longer to approve the deal.
Lien: Make sure the prospective lender is also the lien holder of record on all processed deals. If they are not, you should be cautious. The supposed "lender" is probably just a broker. As a general rule, we recommend that you avoid doing business with a broker unless an extensive investigation is conducted first.
Before signing up with a lending institution, it is a good idea to obtain a reference from another dealership using the lender or an experienced consulting firm such as Auto Credit Express, Inc.