The Federal Reserve Board published research on buy here pay here auto dealers, which both sell vehicles and finance customers directly, finding that they serve materially riskier borrowers than traditional auto finance and manage that risk through higher interest rates, more frequent repayment schedules and much heavier use of vehicle repossessions. It also identifies bank funding to the sector through inventory and receivables-based corporate lending, with more than USD 2 billion of commitments in the matched sample, while bank-reported risk measures for BHPH dealers have recently worsened and moved closer to those for traditional auto dealers after Tricolor's 2025 bankruptcy. In the consumer credit data, BHPH loans represented about 2% of the USD 1.6 trillion auto loan market and 5% of the subprime market in the third quarter of 2025, but balances had grown 214% since 2018 compared with 34% for traditional auto finance. About 78% of BHPH lending volume was to subprime borrowers, with the deep subprime share falling from roughly 70% of loans in 2018 to just above 50% in 2025. BHPH balances showed a 10% delinquency rate versus 3.8% for traditional lenders, and about 5% were in active repossession versus less than 0.5%. The paper reports an average 25.39% interest rate on subprime BHPH loans and weekly or biweekly payments on 14.43% of subprime balances. Its bank lending sample covered 82 obligors linked to about a dozen BHPH lenders, and says the historically lower bank-assessed probability of default and loss given default on these facilities reflected protections such as guarantees, asset-based lending, over-collateralization and special purpose entities, although the reported probability of default on bank loans to BHPH dealers rose by nearly 150% between the second and third quarters of 2025.

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