How to Start an Auto Finance Company

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Not many people can afford to put down $10,000, $20,000 or more to buy a new car. Banks may have certain qualifications regarding credit and income. However, an auto finance company has many ways to finance the sale of an automobile. Rates and down payments are higher to compensate for any credit risks with the borrower. With a high profit margin and secured assets such as the borrower's vehicle, an auto finance company can be lucrative.

  • Contact your state government and pay any application fees it requires to obtain a commercial finance license. In some states such as Florida, the application fee is $825, and there is a minimum of $25,000 liquid cash requirement.

  • Apply for a line credit from your bank. This is the cheapest form of financing to be lent out to your borrowers. Your profit is the difference in interest between what you pay your bank and what rate you charge your borrowers. If your bank is charging you 3.5 percent on your credit line, you can charge as high as 18 percent to your borrowers, depending on their credit history.

  • Visit as many car dealerships as possible. Meet the finance manager and present him your lending programs. Car dealerships make money on points they earn on the financing. One point is translated to 1 percent of the entire loan. The easier it is to get their customers financing, the more cars they sell and the more money your auto finance company lends.

  • Keep a sufficient amount of capital available to make your bank loan payments. Not all borrowers will be steady payers.

  • Photo Credit IT Stock Free/Polka Dot/Getty Images
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