Buy Here, Pay Here targets select customers
It’s no secret that getting customers financed these days is much more difficult than it was in the mid-2000s. Though the market is easing a little, many dealers have decided they don’t want to wait for lenders to loosen up and are instead taking financing into their own hands.
In-house financing, also known as Buy Here Pay Here, has become the only option for some dealers no longer willing to let customers walk out the door.
“A lot of people get denied just because of how the financing industry is,” said Tony Tarell, director of GPS sales for Kryptonite, which sells security solutions for the powersports market.
Some dealers are letting hundreds of customers walk out their doors without units every year because they’ve exhausted all financial resources. But just because a customer didn’t get approved doesn’t mean he or she won’t pay. Often those unapproved simply have no credit history, or they had one major issue that has since been resolved. In-house financing gives dealers an avenue for selling units to those credit-challenged customers.
“If a customer can’t get approved for a loan, I’m going to look at other options rather than have him walk out the door,” Tarell said.
Dealers can learn about in-house financing through training forums and networking with other dealers. The easiest way to start is in pre-owned, Tarell said. He advises dealers to start with a unit that has not been a significant investment. For example, a bike a dealer has spent about $1,300 on that will have a $3,000 price tag would be in the ideal range.
“In a lot of dealerships, especially on used bikes, the guys are able to get down what they have in it,” Tarell said, adding that once that down payment is made, additional payments are all profit.
Tarell recommends all dealers try to get customers approved through traditional avenues first. However, if they don’t qualify, an in-house application process should be similar, requiring pay stubs, a credit check, background check and similar paperwork. Tarell also recommends Google searching the customer to make sure no red flags, such as bankruptcies, bad checks or foreclosures — pop up. Dealers should also look at how much customers are paying in recurring bills.
“At the end of the month, after he’s paid all of his bills, you want to see how much money’s left over,” Tarell said, recommending at least a $500 buffer after all the bills and the bike are paid for.
Down payments and annual percentage rates can be determined on a case-by-case basis.
To secure the bikes that are financed in-house, many Buy Here Pay Here dealers turn to a GPS system. Kryptonite’s RealTime, for example, is a GPS that a dealer can install on a bike to track it. If payments are skipped and the bike needs to be located for repossession, it’s easy to find.
Some dealers cover the expense of the GPS themselves, while others add it to the vehicle price under a GPS line item or with shipping and handling costs. Tarell said about 90 percent of dealers write information about the GPS into the contract, including a disclaimer that tampering with or destroying the GPS is considered an automatic loan default.
GPS location allows dealers to easily find units in case of a loan default, decreasing the costs of having a repo company searching for the unit.
“You call a repo guy or you send your own guy and say, ‘Here’s the address, you can go over there and get it,’” Tarell said.
The system also pumps out a 30-day report, allowing a dealer to track every place the unit has stopped for more than four or eight hours, as a way to verify the customer’s work and home addresses.
“You have a history of where all he goes in a 30-day span, so you know the information he gave you is correct,” Tarell explained.
Though in-house financing can be a risk and a bit of a hassle, dealers can sell loans to other lenders if they’re being paid on time.
“One thing that we’ve been trying to educate the dealers on is this isn’t something that you have to keep track of. This is something that after six months to a year, you can sell off that paper,” Tarell said. Having a GPS on board increases the price lenders are willing to pay to take on the loan.
Offering in-house financing lets dealers get rid of slow-moving units to customers who normally wouldn’t have the opportunity to buy, and it makes the dealers look like heroes for being the only place a customer can turn.
“The real benefit is just going be rolling more deals,” Tarell said. “There are so many deals that they lose every month because they can’t get the customer approved for financing.”