Capital for the LHPH Industry

Creating financial flexibility one dealer at a time

Lease Structure FREE Full Length Webinar

Eyo Toe | March 29, 2021

This month we have some great discussions on all aspects of lease structure. Our 2020 LHPH Virtual Summit had some well educated panelists and previous BHPH dealers who discussed how they specifically structure leases at their dealership and what made them decide to structure them that way.

Fill out the form below to download the FREE full length webinar and learn from from LHPH professionals!


Lease Contract Demo

Eyo Toe | March 24, 2021

Last week we showed you how to calculate a lease by hand using lease specific terminology. Check out this video to see how our calculations can be directly written into the lease contract for your customer!

It will be much easier to understand why we are using these specific numbers if you’ve seen the previous video. If you haven’t seen the lease calculation video, check it out here: https://www.lhph.com/how-to-calculate-a-lease-by-hand/


How To Calculate a Lease By Hand?

Eyo Toe | March 17, 2021

Grab a pen and notepad and learn how to calculate a lease by hand with this simple example! There are many moving parts to a lease contract but understand the formulas used can allow you to better structure your leases for your customers and your dealership. Check out this video!


Lease Variables

Eyo Toe | March 10, 2021

The way leases are structured allow the dealer to adjust many different variables in the contract ranging from agreed upon value to the residual value. Learn all about these different variables in this video!

 


How To Set Residual Values?

Eyo Toe | March 8, 2021

Setting residuals has a stigma of a risky and complicated process due to the new car leasing industry. With used car leasing, residuals are one of the parts of the lease contract that the dealer controls. Setting residuals correctly plays an important part in maximizing the profitability of a vehicle by leasing it for 2-3 full term leases and the selling the car at auction at the end of its lifecycle.

This infographic shows three ways dealers can go about setting residuals. For lower ACV cars, 20% of the agreed upon value is a standard residual calculation which maintains compliance with Reg M (10% residual of the ACV) and ensures the car will be worth at least that value at the end of the lease.

Higher ACV vehicles   allow for the residual to be set at a value which allows the customer to maintain an affordable monthly payment (~$400-$500), without extending term. With a term of 24-36 months, research shows that 30-45% of the car’s value is a safe estimate for the residual value on a higher ACV vehicle.

Lastly, Manheim Market Report (MMR) is a tool that dealers can use to give an accurate estimate of the future car value after the consumer has leased it by adjusting estimated milage, car color, make and model, and more.

Keep in mind, with a well-constructed LHPH program, the goal is to lease out the same vehicle two, three, even four times on full-term leases before you liquidate the asset.  When you are successful in turning these vehicles through multiple full-term leases, if you miss the last residual setting by a few hundred dollars, the vehicle will have already generated a substantial profit for the dealer over a number of years.  Done correctly, residual setting is not a significant risk for LHPH dealers.

If you have additional questions, please reach out to Trevor Watson at TWatson@LHPH.com.


Ideal Lease Structure

Eyo Toe | March 3, 2021

Terry Bowdler, founder of LHPH, has over 40 years of experience in the consumer lending space. There are many different ways to structure a lease, but listen to what Terry describes as an ideal lease structure in the video below!


Lease Contract vs. RISC?

Eyo Toe | March 1, 2021

In today’s market, consumers have access to multiple sources of information which allows them to have access to car models, prices, features, etc. from numerous BHPH dealers in their area. In addition to these changes, COVID-19 has also affected consumer behavior in how they are buying or leasing cars. While competition among dealers is constantly growing, BHPH dealers will need to find a way to differentiate themselves. Leasing gives dealerships a competitive advantage that benefits the dealer and the consumer as well.

Leasing offers dealers several benefits that allow them to gain a competitive advantage. Lease fees are one of the benefits that set apart leases and retail installment sales contracts (RISC). These fees include acquisition fees, purchase option fees, disposition fees, security deposits, excess mileage fees, or excess wear and tear fees. Leasing also allows the dealer to give the asset more than one turn in its lifecycle due to the consumer almost always bringing the car back allowing for additional cash flow with each turn.  Due to the ever-increasing price of used cars, BHPH dealers often have to sacrifice the quality of their inventory in order to keep monthly payments affordable for the customer.  However, thanks to the residual in a lease, the dealer can offer the customer a newer more reliable car for the same monthly payment without extending term resulting in better portfolio performance. Lease contracts are much more flexible than a RISC because the dealer controls the residual value, contract term, money factor (interest rate), and fee structure.

Lease contracts can also provide numerous benefits for the consumer. As mentioned above, the consumer is able to get a more recent model of the vehicle which is much more dependable for the same payment as they would in a RISC with an older higher mileage car. Depending on the term, the consumer will be able to lease a new car from the dealer every 24-36 months or buy their current car for the residual value. In addition, many LHPH dealers provide loss damage waivers and service contracts built into the rent, adding value and peace-of-mind for the lessee.  Similarly, many dealers provide maintenance on the vehicle to ensure the asset is well kept and available to be leased again when the current lessee’s lease matures.


BHPH to LHPH: Make the Switch!

Eyo Toe & Kevin Londerholm  |  September 14, 2020

Watch below as Terry Bowdler, Founder & CEO of LHPH Capital, explains the Sales Tax Advantage that LHPH has over the BHPH model.  With traditional Buy Here Pay Here lending on retail installment sales contracts (RISC), state sales tax is paid at the time of the transaction on the sales price of the vehicle. This means the dealer uses the entire down payment for sales tax and is immediately cash-negative at the inception of the deal.

For LHPH deals in “pay-as-you-go” states, the sales tax is calculated only on the actual monies collected by the dealer (i.e. down payment, first payment). Sales tax is then remitted to the state on each lessee payment received for the remainder of the lease. With this structure, the dealer can pay sales tax over time, rather than all up front. This helps dealers start loans on a cash positive basis, requiring less capital to growth the business as well as better unit economics throughout the life of the lease.


BHPH vs LHPH Benchmarks

Trevor Watson | November 25, 2019

Interested in how Lease-Here, Pay-Here dealers stack up to their Buy-Here, Pay-Here peers?  Here is a comparison of recent benchmarks between the two models.  In 2018, LHPH dealers were rolling larger dollar vehicles, on leases that were eight months shorter in term, with the same monthly payment as the average BHPH dealer.

In subprime lending, you need to keep your terms as low as possible to reduce your risk, while still keeping the customer’s payments affordable.  LHPH provides the financial instrument to do just that.


LHPH Deal Structure

By: Trevor Watson   April 29, 2019

New dealers to LHPH, and those who are transitioning from BHPH to LHPH, tend to initially omit some key opportunities inherent in a well-structured lease.  These fees represent some of the many advantages of the LHPH model when compared to a traditional BHPH deal.  Below are ranges for the recommended fees you should be including when structuring your leases:

  • Acquisition Fee             $495-$895
  • Purchase Option Fee    $350-$450
  • Disposition Fee             $350-$450
  • Security Deposit           $500 or greater, maintain consistency
  • Mileage Fees                $0.10-$0.15 per mile
  • Wear & Tear                Determined by the condition at time of return  

Don’t leave money on the table when you are desking your leases, build these into your standard lease agreement to ensure consistency across all your deals and improve profitability. 

Every dealer is different, give us a call and let’s discuss the right levels for your dealership based on your business model.   

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