In-House Financing

By
Julia Kagan
Julia Kagan
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Julia Kagan has written about personal finance for more than 25 years and for Investopedia since 2014. The former editor of Consumer Reports, she is an expert in credit and debt, retirement planning, home ownership, employment issues, and insurance. She is a graduate of Bryn Mawr College (A.B., history) and has an MFA in creative nonfiction from Bennington College.
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Updated May 11, 2022
Reviewed by
Julius Mansa
Julius Mansa
Reviewed by Julius Mansa
Full Bio
Julius Mansa is a CFO consultant, finance and accounting professor, investor, and U.S. Department of State Fulbright research awardee in the field of financial technology. He educates business students on topics in accounting and corporate finance. Outside of academia, Julius is a CFO consultant and financial business partner for companies that need strategic and senior-level advisory services that help grow their companies and become more profitable.
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What Is In-House Financing?

In-house financing is financing in which a firm extends customers a loan, allowing them to purchase its goods or services. In-house financing eliminates the firm's reliance on the financial sector for providing the customer with funds to complete a transaction.

Key Takeaways

  • In-house financing is when a retailer extends a customer a loan for the purchase of its goods or services.
  • The need for banks or other third-party lending institutions is eliminated through in-house financing.
  • Approval for a loan is typically easier and the process simpler when financing is obtained through the retailer.
  • The automobile industry is one of the largest industries utilizing in-house financing.
  • With the emergence of technology firms and mobile apps, point-of-sale financing allows for immediate financing for consumers.

Understanding In-House Financing

In-house financing is provided by many retailers to facilitate the purchasing process for customers. Retailers must have an established lending business within their firm or partner with a single third-party credit provider to service a loan for their customers. In-house lending benefits consumers in that they are typically able to obtain a loan through the company where they may not have been able to through traditional financing means, such as via a bank.

Some auto dealers may add extra fees for in-house financing. Always read the fine print!

The Automobile Industry and in-House Financing

The automobile sales industry is a prominent user of in-house financing since its business relies on buyers taking auto loans to close the purchase of a vehicle. Offering a car buyer in-house financing helps a firm to complete more deals by accepting more customers.

Automobile dealers also have the benefit of setting their own standards for underwriting, which can sometimes encompass a greater number of borrowers by accepting those with a lower credit score. In many cases, these lending platforms will accept borrowers that banks or other financial intermediaries might turn down for a loan. Other industries offering in-house financing may include equipment manufacturers, appliance stores, or e-commerce retail stores.

Ford Credit

Ford Credit is one of the most well-known in-house auto financing groups. In January 2017, Ford Credit partnered with AutoFi to make car buying and financing even easier through technology that allows the buyer to shop online for their car and auto loan.

With this new point-of-sale platform, Ford customers can shop online through Ford dealer websites, buy and finance their car. This type of customer experience allows car buyers to spend less time at the dealership while also offering a faster sales process for Ford.

Store credit cards tend to have higher interest rates, but the rewards may be worthwhile for very frequent shoppers.

Special Considerations

With the emergence of new financial technology companies, many borrowers now have greater in-house financing options through faster and more convenient point-of-sale credit platforms. Point-of-sale credit technology can be built around a company’s in-house credit department or generally facilitated when a company partners with a single credit provider to service its customer’s lending needs.

Point-of-sale financing simplifies the lending process for customers by allowing them to apply for credit when they are ready to buy. It makes credit convenient for customers since they can receive a credit decision from the retailer in minutes.

Point-of-sale financing also makes it easier for retailers to close a deal. According to a study by Forrester Research, companies that implemented point of sale financing options saw their sales grow by 32%.

How Does In-House Car Financing Work?

In-house car financing is when a car dealership lends their customers part of the purchase price for their car. This provides the dealer with an additional income stream from the customer's interest payments, while allowing the customer to buy a car that they might not have qualified for otherwise.

However, because in-house lenders are smaller, they may not be able to match the interest rates of a large bank or credit union. It may be worth visiting several institutions to compare rates before considering an in-house loan.

Is Bank or in-House Financing Better for Buying a Car?

There is no clear winner between banks and dealer financing, and it may be worth comparing interest rates from both before making a decision. A car loan from a bank represents the "true" interest rate, while dealers may charge a markup or extra fees for financing a car. On the other hand, dealers specialize in auto loans and may be able to get lower rates for newer cars. Some dealers even offer promotional 0% financing for the first year on a new car.

Why Do Stores Offer in-House Financing?

Many retail stores offer in-house financing or store credit cards because these represent an additional source of revenue from their customers. While the interest rates tend to be higher than typical credit cards, they may come with rewards or perks that can be worthwhile to frequent shoppers.

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

  1. Ford Media. "Ford Credit and AutoFi Debut Platform for Faster, Smoother, Simpler Digital Vehicle Buying."

  2. Forbes. "Should Your Business Offer Point-of-Sale Financing?"

  3. Experian. "Is It Better to Finance a Car Through a Bank or a Dealership?"

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