From the November issue of UCD
By John Dismukes
In a volatile lending environment shaped by inflation, rising interest rates, and shifting consumer behavior, understanding the state of used car financing is more critical than ever.
I sat down with Mike Hammon, an industry veteran and executive at American Finance LLC, to discuss the current trends in dealer lending, the challenges facing buy-here, pay-here operators, and what the future may hold for independent dealers navigating today’s complex financial landscape.
John Dismukes: Mike, how would you describe the current state of used car financing in late 2025?
Mike Hammon: Pretty volatile, to say the least. Things are shifting daily. The industry went through a wave of charge-offs and high delinquency earlier this year, and while things have stabilized somewhat, we’re still feeling the aftershocks.
JD: What major shifts have you seen in dealer lending activity over the past 12 months? Do you think higher interest rates and inflation are influencing consumer loan performance?
MH: Absolutely. It’s become harder for dealers to buy cars at prices that allow them to sell competitively without inflating costs. Loan-to-value ratios are out of balance. Once you factor in add-ons, you might be looking at 130 percent to 160 percent LTV. That makes it tough for customers to sustain payments. Interest rates play a role, too, but the bigger issue is affordability. Years ago, we tried to keep terms short – under 30 months. Now, that’s rare. You’ve got to balance higher rates with the risk of default, and that’s a tricky equation.
JD: Many lenders and dealers are reporting more defaults. What’s driving that trend?
MH: Several things. Vehicle prices and monthly payments are high, and customers’ financial stability is fragile. If they need new tires, that’s $800 – two payments gone. Then you’re deciding whether to defer payments or enforce the contract. At American Finance, we evaluate it on a case-by-case basis. The reality is, customer behavior and spending habits haven’t changed, but costs have gone up. It’s tough for both sides.
JD: From the dealer’s perspective, what’s the biggest challenge in securing financing and keeping lenders engaged?
MH: Relationships and transparency. We tell dealers upfront – be open, communicate, and work things out. Some lenders just churn through deals and accept chargebacks as part of the model. That’s not us. Neither dealers nor lenders can afford that anymore.
JD: Any tips for strengthening those relationships?
MH: Communicate! I joked with a dealer in Florida that our relationship has to be better than his marriage – we actually have to talk. Dealers should ask questions constantly: What should I be doing differently? How can I improve my structure? The best partnerships are built on honesty and communication.
JD: Let’s talk portfolio acquisition. What’s the current appetite for buying BHPH portfolios, and what does American Finance look for when evaluating one?
MH: Appetite is strong right now. We review four to five potential deals every day – some small, 20 or 30 accounts, others with 300 or 400. Some dealers sell to grow; others are getting out altogether. When evaluating, we look at the dealer first – how they treat customers, their reputation, the condition and longevity of the assets, and how accounts have performed.
JD: Any immediate red flags that would make you walk away?
MH: Definitely. High mileage, inflated prices and lawsuits. We look at the dealer’s reputation before we even dive into the numbers. If they’re facing legal trouble or customer complaints, we won’t proceed.
JD: Let’s get your prediction on record – what’s your outlook for used car finance in 2026?
MH: I think we’ll see fewer new buy-here, pay-here dealers sustain long-term. Margins are tight, and it takes serious capital – $200,000 a month for at least two years – to get a stable cash flow. Only operators with the right people and systems will make it. We’ll likely see more consolidation, with some finance companies folding or getting acquired. As regulations shift from federal back to state oversight, funding will tighten. But for companies like ours, that creates opportunity –especially in bulk purchasing and geographic expansion.
JD: What opportunities do you see for dealers over the next 18 months?
MH: Education. Dealers need stronger training for collectors, originators, and accounting staff. Associations like NIADA can play a big role here, teaching fundamentals like when collections actually begin. It’s not when the payment is late; it’s when the customer walks on the lot. This industry isn’t as simple as it once was. Success now depends on preparation, knowledge, and the right partnerships.
