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Lease Here Pay Here / Buy Here Pay Here – It’s a Game Changer in the Pay Here Market


Bill Elizondo, COO of AFS Dealers and 30-year subprime veteran, weighs the LHPH and BHPH models and how each can fit into your current business.


The idea of both financing options, LHPH and BHPH, is to get a customer who would normally not qualify for conventional financing into a suitable vehicle.  Thus, the dealer avoids paying heavy fees and recourse to a finance company.  In both cases, it is the dealer that will be responsible for the sales, service, collections, and ultimately the success of its customers, though the bigger picture involves evaluating the potential for the profitability and success of these two options.  


BHPH has been in the mainstream for over 40 years and has become an excellent revenue and profit source for independent and new car dealers alike. LHPH has been in the marketplace for the last 10 years or so, and with the change in tax laws in the Pay-As -You-Go states, it has become a game changer for this market.


Knowing the advantages and disadvantages that come with the LHPH and BHPH models is essential to understanding how either one might complement your business model.


Lease Here Pay Here is a true game changer in our growing industry and if done well can be extremely profitable. Like anything else that we view as a new idea, we research and ask questions and refer to resources. Utilize them and gather insight to determine if LHPH is right for you.


Following are advantages and disadvantages for both options and items to consider when implementing a LHPH or BHPH program.


Similarities between LHPH and BHPH:

  • Customer is financed in-house.
  • A subprime customer who normally is not able to obtain traditional financing is served.
  • The dealer's underwriting system is utilized to decide whether to provide financing.
  • Collections are handled at the dealership or by a closely watched collection department or call center.
  • You control all aspects of the sale, collection, service, and profitability!


LHPH Competitive Advantages:

  • 31 states have Pay-As-You-Go benefits. This is a significant sales tax benefit, making the dealer cash flow positive at the inception of a deal in these states.
  • Cash flow is increased through tax deferral of sales tax payments.
  • You can sell a lower mileage, newer car to your customer, usually for the same price as a BHPH.
  • Customers can lease for a shorter term for the same payment.
  • A lease cannot be included in bankruptcy – equates to fewer losses because of bankruptcies.*
    • No redemption for a chapter 7
    • No reduction on a chapter 13
  • You own the car, thus a repossession company has less hesitation securing vehicles.*
  • Consistent inventory - Dealer can keep hold of the vehicle once the lease matures.
  • No need to have a separate RFC.
  • Ability to depreciate your assets over time in your LHPH portfolio and report the losses on your federal income tax return in the form of a net operating loss (NOL).
  • The Graves Amendment – leasing companies shall not be held vicariously liable for the negligence of a driver using the leased vehicle.
  • For those who understand leasing, this familiarity is itself an advantage because you already understand how the concept works.


LHPH Disadvantages:

  • Concept of the unknown: For those who do not understand leasing, it can be difficult to see the potential.
  • Lending choices are not as abundant.
  • Difficulty finding the right Dealer Management System that offers a compliant leasing module and collection technology together – There are but a handful that understand the LHPH model.
  • Leasing accounting is different than BHPH, so finding the right CPA or accounting firm is important.


BHPH Advantages:

  • This model has been around for 40+ years and is familiar to most dealers and customers.
  • Related Finance Company
    • It can separate some financial risks for the dealership.
    •  Separates the “finance co” from the car dealership, typically with a different name.
    • Allows the finance company to buy the loan at a discounted rate, which creates some tax benefits.
  • Lending is more readily available from banks, finance companies, and investors.
  • There are more dealer management systems capable of doing BHPH support and service.


BHPH Disadvantages:

  • The market has become highly competitive, decreasing potential profits.
  • State sales tax is paid upfront for the price of the vehicle.
  • Down payments are lower because customers have more choices.
  • Terms are longer because the entire balance is financed.
  • Bankruptcy and repossession laws in most states limit your ability to negotiate a fair payment or balance or sometimes procure your asset in a timely manner.
  • Customer is savvier and can shop online to compare BHPH outfits against each other.

*Always check with your legal advisor or counsel before deciding to do any business.


Bill Elizondo, COO of AFS Dealers, LLC, has been in the sub-prime financing and LHPH/BHPH business for over 30 years. He has worked for Car Financial, America’s Car-Mart, and Superior Auto in operations and senior level positions. Currently, Bill uses his expertise by consulting clients across the United States and teaches in seminars and conferences at the national and state levels. 

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