# Understanding In-House Financing: Types, Requirements, and Examples

## What Is In-House Financing?

The term in-house [financing](https://www.investopedia.com/terms/f/financing.asp) refers to financing that is provided directly to consumers by retailers or other firms. It allows people to purchase and finance goods and services directly from the seller. In-house financing eliminates the firm's reliance on third-party lenders in the [financial sector](https://www.investopedia.com/terms/f/financial_sector.asp) for providing the customer with funds to complete a transaction. It's often used in the automotive and retail sectors for large purchases.

### Key Takeaways

*   In-house financing allows consumers to buy and finance goods directly from retailers, eliminating the need for third-party lenders.  
    
*   The automotive industry heavily utilizes in-house financing, enabling more deals by accepting a wider range of customers.  
    
*   Retailers offering in-house financing can maintain customer loyalty by providing convenient credit options and store credit cards.  
    
*   Fintech advancements are expanding point-of-sale financing options, making credit more accessible and immediate for consumers.  
    
*   In-house financing often facilitates easier loan approval processes compared to traditional banks.

## How In-House Financing Works and Its Benefits

While some people are able to, most don't have enough money to pay for large purchases outright in cash. That's where financing comes into play. This is a process that involves borrowing money from another party to complete the purchase. This usually involves a bank or lender, but sometimes the seller offers the financing directly. This is referred to as [in-house](https://www.investopedia.com/terms/i/in-house.asp) financing.

Many auto makers and retailers offer in-house financing to simplify purchases for customers. The part of the business handling customer financing is called an [investment center](https://www.investopedia.com/terms/i/investment-center.asp). This kind of lending benefits consumers by allowing them to get a loan directly from the company, bypassing traditional banks.

In order to offer this kind of service, 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. As noted above, it is common in certain parts of the retail [sector](https://www.investopedia.com/terms/s/sector.asp), such as large department stores and within the automotive industry.  

> **Warning**
>
> Auto dealers might add extra fees for in-house financing. Always read the fine print!

## Critical Considerations in In-House Financing

With the emergence of new [financial technology (fintech)](https://www.investopedia.com/terms/f/fintech.asp) companies, many borrowers now have greater [in-house financing options](https://www.investopedia.com/what-is-embedded-finance-8417153) through faster and more convenient [point-of-sale (POS)](https://www.investopedia.com/terms/p/point-of-sale.asp) credit platforms. [Point-of-sale credit technology](https://www.investopedia.com/how-much-does-pos-system-cost-8653584) 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](https://www.investopedia.com/terms/c/credit.asp) when they are ready to buy. The better the [credit score](https://www.investopedia.com/terms/c/credit_score.asp), the more likely that the customer will be approved—and often for higher credit limits. It makes credit convenient for customers since they can receive a credit decision from the retailer in minutes. It also helps retailers close deals more easily.

Credit-backed sales are growing in popularity as more merchants adopt this option. This was especially true during the COVID-19 pandemic. In fact, fintech firms captured as much as $8 billion to $10 billion in revenue from traditional lenders. It's estimated that 13% to 15% of purchases will use credit-backed POS technology by 2023.  

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

## Exploring Different Types of In-House Financing

### Automotive Industry

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.

Car dealers also have the benefit of setting their own standards for underwriting, which sometimes encompasses 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](https://www.investopedia.com/terms/f/financialintermediary.asp) might turn down for a [loan](https://www.investopedia.com/terms/l/loan.asp). Equipment manufacturers, appliance stores, and e-commerce retailers also offer in-house financing.

### Medical and Dental

Some medical and dental expenses may not be covered by [insurance](https://www.investopedia.com/terms/i/insurance.asp) companies because of the types of procedures involved. These are usually elective procedures, such as plastic surgery and cosmetic dentistry. Providers may offer in-house financing if consumers can't pay upfront. Like auto dealers, these service providers are able to set up their own financing terms for their clients who may be more likely to return for other services if they need them in the future.

### Retailers

In-house financing is also very common for large retailers, especially [big-box stores](https://www.investopedia.com/terms/b/big_box_retailer.asp) that offer more expensive products, such as appliances, furniture, major electronics, and building supplies. Financing options may come in the form of in-store [credit cards](https://www.investopedia.com/how-to-use-a-credit-card-5069558) (that can only be used at that retailer) or loans. Some of the biggest names in retail that offer this type of financing include Home Depot, Lowe's, Apple, and Ashley Furniture HomeStore. Providing the option to finance purchases in-house helps retailers retain customer loyalty.

## A Real-World Example of In-House Financing

As noted above, in-house financing is a common option for consumers who wish to purchase a vehicle. 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.

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

## 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.

## The Bottom Line

In-house financing is a convenient option where the retailer or seller provides the financing directly, bypassing traditional banks or third-party lenders. This approach can simplify the approval process and make it easier for consumers to obtain credit, although interest rates may be higher compared to standard loans. The automobile industry is a key player, but it's also prevalent in medical, dental, and large retail sectors like appliances and electronics. The rise of fintech and point-of-sale credit options has made in-house financing more accessible and efficient, offering immediate credit decisions. Potential buyers should compare rates from different lenders and read the terms carefully to understand all fees involved.

> **Article Sources**
>
> 1.  McKinsey & Company. "[Buy now, pay later: Five business models to compete](https://www.mckinsey.com/industries/financial-services/our-insights/buy-now-pay-later-five-business-models-to-compete)."
>     
> 2.  Ford. "[Ford Credit and AutoFi Debut Platform for Faster, Smoother, Simpler Digital Vehicle Buying](https://media.ford.com/content/fordmedia/fna/us/en/news/2017/01/23/ford-credit-autofi-digital-vehicle-financing.html)."