Deal Pack Blog
Hybrid Payment Share Options for BHPH Dealers
If you are a Buy Here Pay Here dealership looking to outsource your collections efforts there are a handful of programs being offered by lenders that you may have at your disposal that you may not even know exist! Of course there is the most common – the bulk purchase, where you can sell your loan for a percent of face value. In this scenario the lender assumes the full asset in the purchase and cuts the dealer a check relieving the dealer of all obligations of the loan. You may also opt to sell a number of payments at a time, in which the lender will cut the dealer a check for the face value (or percent) of the payments they will be servicing. This obligates the lender to only those payments purchased and the dealer retains control of the loan for the remainder.
Some lenders may also offer to service a loan in exchange for a fee (or percent) of each payment received. This concept is called loan servicing – the dealer retains control of the full asset and the lender will usually pay the dealer bi-weekly or monthly, depending on their agreement, the full payment collected less any fees retained for servicing the loan. With the servicing option the lender can focus on collecting while you can focus on selling. This is an attractive option but it does not offer instant cash flow like the previous two options.
What a lot of dealers do not know is that there is another program that some lenders offer which (in most cases) can end up being the most profitable in the long run AND provides the solution to your capital woes. Sometimes called payment share or dealer share, this option is a hybrid between the bulk (outright) purchase and loan servicing. Dealers can receive in some cases up to 90% of face value over the life of the loan instead of 78-80% on average with a bulk sale. With payment share, the dealer is funded a lower percent of face value up front and then the lender agrees to make payments to the dealer for the remainder of the loan at a percentage of the payment amount or principal collected. Do some research for yourself to decide which lending partner may be best for you and be sure to ask if they offer some of these programs.