Small used car dealerships may not have the resources to provide financing to their customers like a larger new car dealership can. This leaves an opening for an independent auto loan company to provide this service for them. A loan service is responsible for taking the application from the prospective customer and finding the best source of financing, either from local banks or from their own sources of capital. You may also decide to provide servicing for the loan, meaning that you collect the money for the payments, and you also handle collections of past-due loans.
Determine the type of auto loan company that you want to be. You can be a source of financing that sells the note to a bank for a finance company that then services the loan and maintains the security on the collateral, repossessing it if the borrower doesn't pay. The bank would pay you for the loan based on the interest rate and the borrower's credit qualifications. Or you may also want to make loans yourself out of your own capital and service them on your own as well.
Arrange for a business line of credit. How large a line you will need depends on if you are making the loans yourself or simply selling the notes to different banks, with the latter possibly not requiring any borrowed capital at all. In fact, you may need to start by selling the notes until you build your business and a relationship with your bank that may encourage them to loan you money on a credit line.
Purchase computer software to operate your auto loan company. It is extremely involved to keep track of many different auto loans and the payments that you are receiving on each without some sort of software package. A good system will allow you to apply payments and track balances, as well as manage collections and print reports of how your business is operating. Autopal is a potential solution for an auto loan company.
Obtain any business licenses that you need. In addition to the usual city or county business licenses and tax ID numbers, your state may also be interested in licensing you as a consumer lender. You should check with your state's department that regulates banking or insurance matters to see if you must do this. If you are going to make auto loans across state lines, you may need to be licensed in each state that you do business in.
Market your auto loan business effectively. You may want to offer your services to smaller auto dealerships and used car lots first to grow your business. Marketing directly to consumers is another option but probably less efficient in the beginning states of your business. Encourage used and new car dealerships to send potential buyers to you, and close the loans.
Stay up-to-date on the auto loan business by reading trade publications and attending shows and conferences.
Make sure that you have careful guidelines for credit approval if you make loans using your own capital.