ASHLEY DONOHOE What Is In-House Financing?
Saleswoman explaining paperwork to a couple at a car dealership
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BY ASHLEY DONOHOE Updated November 13, 2021
REVIEWED BY MARGARET JAMES
DEFINITION
In-house financing is a form of financing where the business that sells a specific product or service can provide loans directly to customers who need them. This type of financing eliminates the need for a separate, third-party lender.
In-house financing is a form of financing where the business that sells a specific product or service can provide loans directly to customers who need them. This type of financing eliminates the need for a separate, third-party lender.
Definition and Examples of In-House Financing
In-house financing is when the seller takes on the full risk for a loan and makes the final decision on who gets approved and which terms to offer. This is in contrast to working with third-party financial institutions that may have specific requirements for borrowers to meet. Different lenders may also have longer application processes. With in-house financing, the business uses its own funds to extend loans to customers so they can purchase the specific products or services offered.
In-house financing generally offers a simpler application process because both the financing and purchasing steps happen through the seller directly. Potential borrowers complete an application process either online or in person at the business where they’re interested in making a purchase. The business sets specific requirements for borrowers and works with the customer to negotiate the loan terms. If approved, the customer can make a purchase with the loan they were just extended. Monthly payments are then made directly to the seller.
For example, car dealerships are well-known for offering in-house financing. Customers may complete an in-house financing application for a new or used vehicle on-site at the dealership, and get approved the same day.
Dental offices, home goods and electronics stores, equipment retailers, and even home builders may offer in-house financing programs.
How In-House Financing Works
Since the seller acts as the lender and decides the borrowing requirements, in-house financing often appeals to customers who can’t meet the credit requirements of traditional lenders.1 For example, if you’ve just turned 18 and don’t have a credit history yet, or if you have had to file for bankruptcy, you might turn to in-house financing if traditional lenders have rejected your applications.