In-House Car Financing: Everything You Need To Know

It’s time for a customer question and while we have lots to choose from, one in particular caught our eye this week. It was ‘What is in-house financing and is it a good idea?’ As we have come across this question before, we thought we would ask our car loan team to answer.

 

Here’s what they said:

 

In-house financing is where the dealership provides the finance themselves rather than use a third party. It’s the same as a ‘buy here pay here’ car loan and can be offered on both new and used cars.

 

How Does In-House Financing Work?

In-house financing uses the dealership’s own money to finance the purchase or use private equity. It’s a similar system to a standard car loan except you’re not using a lender, you’re borrowing from the dealership.

 

These can offer a good deal, but not always.

 

Pros & Cons of In-House Financing

There are definitely pros and cons to in-house financing!

 

Pros of In-House Financing

• Easier Arrangements: Dealership finance isn’t so tightly regulated as traditional loans so can be faster and easier to arrange.

 

• Easier Qualification: As in-house financing doesn’t have the same legal requirements as lenders, it can be easier to qualify for this type of loan.

 

• Convenience: Getting finance while sitting in the dealership is easy anyway but a faster process and a system skewed toward lending wherever possible helps.

 

Cons of In-House Financing

• Higher Interest Rates: Many in-house financing deals are at higher rates than traditional car loans. These are usually negotiable though.

 

• Stricter Terms: Many in-house financing contracts don’t allow for overpayments, early settlement or flexibility in the terms. That’s not always an issue but is something to bear in mind.

 

• Might Not Improve Credit: Some in-house financing will report your payments to the credit bureaus to help your score. Some won’t. Make sure you know which is which before you sign.

 

For some borrowers, regulation makes the process more difficult but it’s there for your protection. You have more hoops to jump through to qualify for a standard car loan but you also have more legal protection.

 

While we’re not implying in-house financing is risky, there are often fewer regulations in place to protect you during the loan. If this makes a difference, you may be better off with a standard loan.

 

If it doesn’t, in-house financing can work.

 

We would recommend exploring all your options before you sign though. That’s where our car loan team comes in. We can help you explore all your car loan options. We are especially good at helping those with less-than-perfect credit.