What is In-House Financing?

In-house financing is a loan offered by car dealerships to prospective buyers. There are benefits to in-house financing that extend to both you and the dealership itself. It is important for you to understand in-house financing, how it differs from outside financing options and whether it suits your unique circumstances, before locking yourself into the loan.

Mutual Benefits

In-house financing offers benefits to you and the dealership at once. The benefits that affect the dealership are the ability to sell you a car, potential profit from loan interest and the low risk associated with nonpayment. If you are unable to make the necessary payments toward in-house financing, the dealership simply repossesses the car and starts the process over again with a new buyer.

You benefit from in-house financing options, as well, especially if you have had trouble getting approved for similar loans through traditional channels like banks and credit unions. Dealership financing standards are usually more flexible than those found with other financing avenues, allowing someone with poor credit but a steady income to purchase a car they really need. Most dealerships that offer in-house financing will also run your financing options before showing you any vehicles, so you can only shop cars that fit the limitations of your loan.

Interest Rates and Special Offers

For a number of reasons, in-house financing loans will have higher interest rates than similar loans from outside creditors. This increased interest rate often scares shoppers away from the dealership financing, but there are other details of the in-house loans to consider before writing them off based on the interest. Not only are dealerships more willing to work with what other financing avenues consider “high risk” loan applicants, they are also able to extend special offers, credits and other perks that you probably would not get from a bank or other lender. Consider how these available special offers you may qualify for balance out the higher interest rate on the principal loan.

Preparation and Research

Whether or not you’re set for or against in-house financing, there is both research you should do and preparations you should make while considering your car loan options:

• Check your credit report. A lack of credit history or low credit rating is an indication that the in-house financing may be your best loan option.
• Prepare financial documents that prove your income.
• Research dealerships in your area that offer in-house financing and the terms they are known to extend to buyers.

In-house financing through a car dealership allows high-risk and first-time buyers a chance to drive off in a safe, affordable and reliable vehicle. Be sure to understand the terms of the loan before committing to repayment.

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