Deal Pack Blog
Selling Installment Contracts for Dealerships
At some point or another, many BHPH Dealers will commonly consider selling their Retail Installment Contracts to a Finance Company. Whether it is to generate some short term cash, trying to get away from BHPH, or maybe you just think you can get a good deal. Although the number of Finance Companies out there willing to play ball changes all the time, dealers that know what they are doing are able to maintain lending sources and still remain profitable through the good times and bad. And that is the point. You are not just generating cash; you have to be profitable. If you keep eating a loss selling your contracts, you will not last long despite the ‘Cash Flows’ generated. So when you do decide to sell your contracts, it is best to keep a few things in mind.
If you don’t understand it, you probably shouldn’t do it
Selling your contracts at point of sale to a Finance Company can be a great way to keep cash flowing through your dealership and eliminate the time and risk of collections. Lenders will often give you a good deal, but make sure you understand the deal! It is incredibly common for dealers to receive the funding break-down for a deal they sold and not be able to make heads or tails of the overly and needlessly complicated document. As a rule for any business transaction, if the transaction is so complicated you can’t understand it, it will often turn out bad for you! Take the time to make sure you truly understand what you are getting when you sell your deals and ask questions when you have to. Rest assured the Finance Company does understand the deal, and has a good idea of how much money they will make from it. Make sure you do too.
Keep a strong relationship with the lenders you work with, even if it has been slow. Keeping a network of lenders is the same as any other business networking. Keep in contact and keep a friendly relationship, even if you don’t need anything from them right now. One day you will and you don’t want to be just another face in the crowd or just numbers on paper at that point. Finance Companies enter and exit Sub-Prime Finance all the time. Keeping strong relationships with your network will ensure you are never left scrambling as the industry ebbs and flows.
Explore all Your Options
The world of finance never stands still and is always trying to think of new ways and new options to make money. New products are introduced all the time to try to fit the needs of every dealer. From fee-based servicing agreements to the purchase of a stream of payments, there are more options than ever to meet your financing needs. Ask your lender what other options you may have besides selling the contract outright as there may be a different product that works much better for you. Just make sure you understand exactly what you are getting before finalizing anything.