Working with the best subprime auto lending companies can make all the difference for a BHPH dealership. As a buy here pay here dealer, you act as your own bank, financing subprime, and even deep subprime customers. Of course, to keep a healthy cash flow and continue buying inventory, capital loans and secularization are often a necessary part of the business. Which financial companies you choose to make these arrangements with can have a powerful impact on your business. BHPH Marketplace looks at which lenders are the safest bets, and which may present bigger risks.
In general, many financial analysts recommend larger lenders as safer choices for subprime auto securitizations and capital loans. The reason is simple: too many small and moderately sized subprime auto lending companies have consolidated with larger companies or gone under altogether, and that makes investors nervous. Naturally, nervous investors mean less money, and that could translate to less capital available for your dealership. Since the beginning of 2018, several such lenders have disappeared from the market, including Summit Financial Corporation, Security National Automotive Acceptance Company, and Honor Finance.
Of course, a lender’s experience matters at least as much as the company’s size. Bank of America analysts warned against choosing subprime auto lending companies who are new to the game, especially if those lenders are also small.
“The cessation of originations and operations by certain deep subprime lenders… argues for caution around small, privately backed lenders,” one analyst wrote. “Especially those with little to no securitization history.”
However, even some large lending companies are not invulnerable. Santander Consumer USA Holdings Inc., one of the largest subprime lenders in the market, has recently made news by seeing subprime auto loans in their portfolios turning sour at the fastest rate since 2008. Of course, one reason is the continuously rising default rates due to high-risk consumers struggling financially more and more every year, but Santander is still seeing a higher number of bad loans than their contemporaries. This should teach one valuable lesson to BHPH dealerships: where choosing subprime auto lending companies are concerned, there is no substitute research. As many consumers in target demographics continue to struggle, it becomes increasingly vital to learn how well a lender is performing in the BHPH market before doing business with them.
The news is not all bad, however. There are still some subprime auto lending companies who are doing well, and who offer strong capital loan options. BHPH Marketplace found that lenders like Spartan Capital and PrimaLend are currently among the best sources for capital loans. The latter offers the added bonus of software that allows them to generate reports, rather than constantly requesting spreadsheets and information from dealers. Atlanta-based SDA Capital made the cut as well, and, as the company specializes in capital loans for BHPH dealerships, it may be one of the best choices for players in the subprime auto market.
There are certainly still good, solid options out there for BHPH capital loans and securitizations. However, it is more important than ever that you take care when selecting a subprime auto lending company to provide these financial services. Choosing the right lender– such as SDA Capital, Spartan Capital, or PrimaLend– may make the difference between future financial success or future financial problems.