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 has been 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 helping 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.

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 potentially allowing for lower credit score acceptance. 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.

In-House Financing and Technology

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 their customer’s lending needs. For example, Affirm is a fintech company that is one of the most popular point-of-sale platforms that partners with thousands of retailers for immediate financing.

Point-of-sale financing simplifies the lending process for customers by allowing them to apply for credit at the point in which 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. Companies that implemented point of sale financing options saw their sales grow by 32%.