With the recent signing of a new bill that changes the taxation of lease transactions starting in 2025, Buy-Here-Pay-Here (BHPH) car dealers in Illinois have a unique opportunity to transition into Lease-Here-Pay-Here (LHPH). This shift can bring several significant benefits for both dealers and customers.  Read more below to learn the benefits of leasing in 2025 for Illinois dealers.

The new legislation, Public Act 103-0592, signed into law on June 7, 2024, will take effect on January 1, 2025. This bill mandates that lease transactions of tangible personal property, including vehicles, will be subject to sales tax. Previously, Illinois taxed the acquisition cost of items purchased for lease purposes, but under the new law, the tax will be applied to the lease payments made by the lessee. This aligns Illinois with the majority of other states that tax lease payments rather than the purchase price of leased items.

1. Improved Cash Flow

One of the primary advantages of moving to an LHPH model is the improvement in cash flow. In a traditional BHPH setup, dealers must pay the full sales tax upfront on the entire vehicle price. However, with leasing, sales tax is only paid on the monthly lease payments. This means dealers can retain more cash initially, which can be reinvested into the business or used to improve liquidity.

2. Lower Monthly Payments for Customers

Leasing often results in lower monthly payments compared to traditional financing. This can make vehicles more affordable for customers, potentially increasing the customer base for dealers. Lower payments can also lead to higher customer satisfaction and retention.

3. Tax Benefits

The new sales tax structure for leases can provide tax advantages for dealers. Since the tax is spread out over the lease term rather than being paid upfront, dealers can manage their tax liabilities more effectively. This can result in significant savings and better financial planning.

4. Higher Profit Margins

Leasing in 2025 can lead to higher profit margins for dealers. By leasing vehicles, dealers can earn rental income and potentially sell the vehicle at the end of the lease term. This dual income stream can be more profitable than a single sale transaction.

5. Reduced Risk

Leasing can reduce the financial risk for dealers. In a BHPH model, if a customer defaults on their loan, the dealer may face significant losses. However, with leasing, the dealer retains ownership of the vehicle, making it easier to repossess and lease or sell again. This can lead to lower default risks and better asset management.

6. Flexibility in Vehicle Management

Leasing allows dealers to maintain a more flexible inventory. Vehicles can be leased for shorter terms, allowing dealers to update their inventory more frequently and offer newer models to customers. This can enhance the dealership’s appeal and competitiveness in the market.

The transition from BHPH to LHPH in Illinois, especially in light of the new sales tax on leases, presents a strategic opportunity for car dealers. By improving cash flow, offering lower monthly payments, leveraging tax benefits, increasing profit margins, reducing risk, and maintaining flexible vehicle management, dealers can enhance their business operations and customer satisfaction. Embracing leasing in 2025 could be a game-changer for BHPH dealers looking to thrive in a changing economic landscape.  If you have any questions on how your DMS software can help you with this transition, reach out to a customer support specialist at support@abcoa.com or 800-526-5832.