BHPH vs. LHPH: Navigating In-House Financing

Why focus on in-house financing?
If you're an independent dealer, chances are you've been down the BHPH road, or at least stood at the intersection trying to decide which direction to take. Maybe you've built your business around it. Maybe you're just getting started. Either way, in-house financing is no longer just a niche strategy. It's become a cornerstone for dealerships looking to stay competitive, flexible, and in control. Especially in markets like ours, where traditional lenders often pull back just when your buyers need help the most.

But here's the thing: not all in-house financing is created equal.

Two familiar paths, with very different outcomes
At first glance, Buy Here Pay Here (BHPH) and Lease Here Pay Here (LHPH) might look like two sides of the same coin. Both models put the dealer in the driver’s seat, responsible for financing, customer relationships, and managing risk. Both require careful systems, dedicated staff, and a deep understanding of your market. But once you peel back the layers, the operational, financial, and regulatory realities are vastly different.

One model might give you better shortterm cash flow. The other might reduce your exposure to bankruptcies or improve how you handle inventory over time. Your choice here doesn’t just affect your next deal, it shapes how your business scales, how it weathers economic shifts, and how confidently you sleep at night.

The BHPH balancing act
BHPH is the classic route for many independent dealers. It’s familiar, relatively straightforward, and gives you total control of the loan process. You decide who gets approved. You set the terms. You collect the payments. For a lot of operators, that level of control is a big reason they got into this business in the first place.

But with control comes responsibility and risk. You’re fronting the cost of the vehicle, often from your own capital or floor plan, and getting paid back over time. That can create serious strain on cash flow if customers start to fall behind. And they do, especially in today’s subprime-heavy environment. You’re also the one handling collections, repossessions, and charge-offs. That can take a toll on your team and your bottom line.

Add to that the regulatory side. BHPH deals are treated as retail installment sales, governed by Regulation Z. That means strict requirements for disclosures, APR transparency, and fair lending practices. Miss a detail and you could find yourself in hot water with regulators, or worse, in court.

The LHPH shift in mindset
LHPH flips the model. Instead of selling the car, you lease it. You retain title throughout the lease term, which opens up a different set of opportunities, and responsibilities.

First, there’s the asset itself. Because you never relinquish ownership, the vehicle can be re-leased, re-sold, or returned to your lot at the end of the lease. That opens the door to inventory recycling, which can seriously reduce your acquisition costs over time. Mature LHPH portfolios tend to generate a stream of debt-free vehicles, vehicles you already own that can go right back into your operation.

Then there’s the financial picture. Lease payments often involve lower monthly costs for the customer, which can widen your audience. And because the upfront cash collected often includes refundable security deposits, you’re bringing in funds that aren’t taxed as income. Plus, since sales tax is spread across the life of the lease, your initial tax burden is lighter. It all adds up to improved cash flow and potentially better margins.

From a compliance standpoint, LHPH is governed by Regulation M (Consumer Leasing Act), which has different, but equally important, disclosure rules. One of the biggest advantages here? Leases are considered "bankruptcy remote." If your customer files for bankruptcy, they typically have to return the vehicle or keep making payments. That’s a major buffer against loss.

Of course, there are trade-offs. You may be on the hook for vicarious liability in some states if a lessee gets into an accident without insurance. And because you’re holding onto the asset, your capital is tied up for longer. You’ll need to manage that balance with solid forecasting and possibly a more robust insurance strategy.

A timely conversation
Now’s a good time to slow down and take a real look at these models. Not just from a compliance standpoint (though that's critical), but from a 360-degree operational perspective. How are your default rates trending? What does your capital stack look like? How long does it take you to turn inventory? What’s your risk appetite?

These are the kinds of conversations we should be having, not just with vendors and software partners, but with each other. Because the truth is, there’s no silver bullet. But there is a better fit for your market, your team, and your future.

Not one-size-fits-all and that’s the point
Whether you’re expanding a BHPH portfolio, exploring LHPH for the first time, or actively running both, your financing model is more than a strategy, it’s your engine. Get it right, and everything else starts to align: your margins, your growth, your customer experience.

This guide isn’t about pushing one model over the other. It’s about helping you ask smarter questions, avoid costly missteps, and find the path that fits your business, not someone else’s.

So let’s dive in. No fluff, no hard sell. Just a clear-eyed look at BHPH vs. LHPH, from the perspective of dealers who live this stuff every day.