The Powerful Alternative to Buy-Here, Pay-Here Lending

Millions of Americans with poor or no credit turn to buy-here, pay-here (BHPH) car dealers to finance the critical transportation they need for their daily lives. In return, they pay much higher interest rates, often around 20%, than they would get from a bank or credit union.

That higher interest dramatically raises the price of a car, a situation made only worse in these pandemic-fueled days of sky-high prices for used cars, which rose on average by more than a third in 2021, according to Black Book research.

Of course, BHPH dealers are charging those rates to compensate for risk. Credit unions, banks and other lenders must do that, too, and very often find that the risk simply isn’t commensurate with the reward for underwriting at rates high enough to make this credit tier work for their portfolios.

But there is an alternative: the Lenders Protection™ auto lending enablement platform from Open Lending. Lenders Protection™ integrates loan analytics, risk-based modeling and pricing, and default insurance to expand a financial institution’s ability to serve more borrowers while achieving a targeted ROA for its own insured auto portfolio.

The higher rates charged for nonprime loans naturally yield more revenue for the lender than they get from top-tier borrowers. Lenders Protection™ users generally see 300% to 400% higher net ROA from those lower-tier loans while staying within the unique parameters that each lender sets for their program.

 Lenders Protection™ clients apply the program only to the direct and indirect loans they choose, allowing them to determine how many borderline loans they wish to provide. In addition, Lenders Protection™ insures the lender not the borrower, so no disclosure is required, and the average portfolio using this program sees about 85% recovery of deficiency balances.

 The nonprime market is huge and growing, and with rising prices and interest rates, far too many of those borrowers feel they have no alternative but BHPH lots. That doesn’t have to be. Lender Protection™ from Open Lending provides the data analytics, software and experience for auto lenders of all types and sizes to serve this market responsibly, enhancing its own bottom line while providing hard-pressed consumers a more affordable way to buy the family transportation they need.