The market for Buy Here Pay Here (BHPH) financing is booming—and with it the demand for legacy auto loan contracts, known as Notes. More and more dealers are choosing to sell their outstanding receivables to unlock liquidity and transfer risk. But which companies buy these BHPH Notes? And what should dealers look out for when selling their contracts? This guide covers everything you need to know—clearly structured, easy to read, and full of practical insights.
What Are Buy Here Pay Here Notes?
BHPH Notes are formal records of outstanding loans that a dealership holds against a buyer. Under the BHPH model:
- Loan Origination: The dealership underwrites the loan based on income verification rather than a traditional credit check.
- Payment Collection: The buyer makes weekly, bi‑weekly, or monthly payments directly to the dealer.
- Note Creation: Each active loan is documented in a Note, detailing the remaining balance and payment schedule.
These Notes become assets on the dealer’s balance sheet—but they also carry risk, which is why many dealers choose to sell them.
Why Dealers Sell Their Notes
1. Immediate Cash Flow
Selling Notes converts future payments into instant cash. Dealers can reinvest those funds to purchase new inventory, pay operating expenses, or expand their business without waiting for months of payments to arrive.
2. Risk Transfer
By offloading Notes to specialized investors, dealers shift default risk—late or missed payments—off their books. The investor, not the dealer, assumes the risk of buyer non‑payment.
3. Focus on Core Operations
Managing collections, pursuing late payments, and handling defaults can be time‑consuming. Selling Notes allows dealers to concentrate on sales, customer service, and growing their core business.
Key Criteria for Note Sales
Note Quality
- Remaining Term: Notes with shorter remaining terms typically fetch higher prices.
- Outstanding Balance: Larger balances can lead to more attractive lump‑sum offers.
Interest Rates
- Contractual APR: Higher interest rates generally increase a Note’s value to investors.
- Late Fees: The ability to collect default interest or late‑payment fees adds to the Note’s appeal.
Borrower Profile
- Income Verification: Reliable proof of steady income boosts investor confidence.
- Payment History: Previous on‑time payments indicate a lower default risk.
Leading Companies That Buy BHPH Notes
Strategic Funding LLC
- Specializes in mid‑tier BHPH portfolios
- Rapid underwriting and daily advance payments
National Note Buyers
- Large capital reserves for bulk portfolio acquisitions
- Transparent fee structure with competitive upfront discounts
Capital Alliance Funding
- Focused on regional dealers, especially on the East Coast
- Full servicing support, including collections and reporting platforms
Niche and Regional Buyers
- Often more flexible and responsive for smaller dealers
- Ideal for dealerships with limited Note volume seeking personalized service
Pros and Cons of Selling Your Notes
Advantages
- Instant liquidity for reinvestment
- Risk mitigation by shifting defaults to the buyer
- Reduced collection burden and administrative overhead
Drawbacks
- Discount on face value (an investor’s purchase price is below the Note’s total balance)
- Forgone interest from future on‑time payments
- Contract commitments may limit flexibility for future refinancings
Step‑by‑Step: How to Sell Your Notes
- Initial Inquiry
Reach out to multiple buyers to request preliminary offers and rate cards. - Due Diligence
Prospective buyers will review your contract templates, borrower files, and payment histories. - Offer & Negotiation
Buyers present purchase offers, including discount rates and fees. Negotiate for the best net advance. - Purchase Agreement
Sign a sale and purchase contract outlining terms, recourse (if any), and servicing responsibilities. - Note Transfer
Execute an assignment of Notes and receive your lump‑sum payment—often within days. - Ongoing Reporting
Some buyers provide platforms for ongoing performance reporting, and may offer collections support.
Dealer Tips Before Selling Notes
- Compare Multiple Buyers: Prices and terms can vary widely—obtain at least three bids.
- Watch Out for Hidden Fees: Check for underwriting charges, servicing fees, or recourse penalties.
- Maintain Complete Records: Accurate borrower files and payment logs speed up due diligence.
- Evaluate Servicing Options: Some buyers include full collections services, which can be a valuable add‑on.
- Consider Alternatives: Traditional bank loans or factoring programs may sometimes offer competitive rates.
Frequently Asked Questions
Q1: Why do buyers discount Notes instead of paying their full face value?
Investors must compensate for default risk and administrative costs, so they pay less than the remaining balance.
Q2: Are there standard industry discount rates?
Typical discounts range from 5% to 15% of the total Note value, but can vary based on credit quality and portfolio size.
Q3: Can dealers sell partial Note portfolios?
Yes—many buyers accept portfolios as small as $50,000 outstanding balance, though larger portfolios often secure better terms.
Q4: Is there any recourse if borrowers default after sale?
It depends on the buyer’s terms. Some purchases are non‑recourse, meaning the dealer keeps no liability; others include limited recourse provisions.
Conclusion
For dealers in Atlantic City and beyond, partnering with companies that buy Buy Here Pay Here Notes offers a powerful way to free up working capital, reduce credit exposure, and streamline operations. By assessing buyers carefully—comparing offers, reviewing contract terms, and prioritizing services—you can maximize your net proceeds and stay focused on what you do best: selling cars and serving customers.
Armed with this guide, you’re ready to explore the Note‑buying market, negotiate favorable terms, and unlock new avenues for growth in your dealership. Good luck!