What Is In-House Financing?

If you’ve ever seen a car dealership run an ad that says something like, “We finance everyone,” you’ve likely encountered in-house financing. In-house financing is when the seller of a product or service also acts as the lender. You make payments directly to them instead of borrowing from a bank or credit union. 

If you want to skip the application process or don’t have the best credit, in-house financing can be a viable option. However, there are pros and cons associated with financing through a seller. Before you sign on the dotted line, make sure you know how it works and whether the deal supports your long-term financial goals or not. 

Our guide unpacks the question, “What is in-house financing?” so you can decide whether and when to use it for your purchases. 

What is in-house financing?

In-house financing is a payment arrangement where the business selling you something provides the financing directly. You may encounter this type of offer when working with a buy-here, pay-here car dealership, furniture store, or medical provider. 

Instead of applying for a loan with a third-party lender, you agree to make installment payments to the seller for a specified period. The seller sets the loan terms, which include the following:

• Interest rate
• Repayment period
• Down payment
• Late fees

Since the seller is the one who decides whether you are approved or not, the underwriting standards tend to be more flexible, if there is an underwriting process at all. Individuals with low credit scores and those rebuilding after a rough patch tend to favor in-house financing. 

However, you’ll pay for that flexibility in the form of higher interest rates and fees. The seller assumes more risk, and they are going to pass that on to you by charging more for financing. For example, many buy-here, pay-here lots require you to make weekly payments and typically charge high interest rates. 

In-house financing vs. traditional loans

The best way to answer the question, “What is in-house financing?” is to compare it to traditional loan options. With traditional financing:

• You apply for a loan with a bank, credit union, or online lender
• The lender conducts a credit check
• Interest rates are based on your credit score and market conditions
• The loan may include built-in consumer protections

With in-house financing:

• The seller provides the loan
• Credit requirements may be less strict
• Terms are set by the business
• Interest rates may be higher

If you have stronger credit, you may qualify for a competitive interest rate from a traditional lender. If you are concerned you may not qualify for a traditional loan, in-house financing can be a viable alternative. 

Pros and cons of in-house financing

Let’s look at the advantages and disadvantages of in-house financing in different purchasing scenarios: 

Buying a car

Purchasing a car is one of the most common uses of in-house financing. The pros include:

• An easier approval process for borrowers with poor credit
• Convenient one-stop shopping
• Faster process

The downsides are:

• Higher interest rates
• Limited vehicle options
• Risk of repossession if you miss payments

Buy here, pay here car lots may not report your payments to credit bureaus. Even if you pay on time, the transaction may not help you build credit. Additionally, vehicles rarely include warranties or other protections.

Furniture and retail purchases

Many furniture stores and electronics retailers offer in-house financing. Benefits of these offers include:

• Promotions like “no interest if paid in 12 months”
• Quick approval at checkout
• Immediate access to items you may need or want

The downsides include:

• Deferring interest can cost you two to three times the item’s retail value if not paid in full
• High standard interest rates kick in after promos end
• You may be tempted to overspend 

If you are counting on a promotional period, make sure you pay off the item during that window. If you don’t, the seller may retroactively add interest based on the original purchase amount. 

Medical and dental services

Some healthcare and dental providers allow you to set up payment plans, especially for elective procedures. Pros are as follows:

• You can spread out the high costs
• May involve low or no interest 
• Avoid using high-interest credit cards

The downsides include:

• Short repayment terms
• Late fees
• Limited flexibility if you encounter financial strain

While in-house financing can provide access to the services you need, it’s important to find out whether your payments are reported to credit bureaus. Otherwise, you won’t receive credit for your positive financial behavior. 

How does your credit score impact in-house financing?

Some in-house lenders perform soft credit checks. If you are signing up for in-house financing with a lender that checks your score, it can influence:

• How much money you have to put down
• The interest rate
• Loan term length
• Your total cost of borrowing 

If your credit score is low, you may still be able to qualify. However, your costs of borrowing will be much higher. 

Report verified payments with Kikoff

In-house financing can be a valuable option if you need to finance a purchase, but don’t have the best credit. In the meantime, you should work on improving your score so that you can qualify for traditional financing options in the future. Tools like Kikoff can help.

Kikoff offers verified rent reporting, free dispute tools, and secured credit cards to strengthen your credit report and increase your score. Take a step toward stronger credit habits with Kikoff.