So you’d like to buy a car, but your credit score isn’t the greatest. Maybe you had a period of financial hardship that resulted in some late or missed payment. Perhaps a bad split-up with a significant other took an equally significant toll on your credit score. There are a lot of good people out there who, due to a run of bad fortune, ended up with bad credit. There are still options available for financing a car.
One of these options is in-house financing. Have you ever driven past a used car dealership and seen a prominent sign that advertises, “Buy Here Pay Here?” This sort of option is in-house financing, and can provide an attractive for people with less-than-optimal credit scores. It does, however, work differently than traditional financing options.
In an in-house financing model, the dealer provides the financing to buyers directly. There is no third-party, no bank directly involved. Because the dealer assumes the lion’s share of risk on these sorts of deals, they want to make sure that these “tote the note” deals see regular, on-time payments. Some dealers may require on-site payment and/or install a computer in your car that will de-activate the vehicle if you are late on payments, requiring you to make your monthly payments with little flexibility.
However, far less weight is placed on the buyer’s credit score to finalize the purchase, with more placed on the income and potential ability to pay back the loan. In this case it is even more important to ensure that you can afford your monthly payments on time every month.
In addition, this sort of loan can be a great option for improving your credit score, enabling you to refinance your car at a lower rate through more traditional channels, later on. Sometimes, an in-house financing deal can offer other options beyond the traditional 36- or 48-month financing, and can extend payments out further, enabling lower monthly payments (but sometimes significantly higher interest paid when all is said and done). In addition, since the dealer does not have to borrow money from a bank, and is selling you a car that the dealer owns outright, you might be able to negotiate a lower interest rate than with a traditional deal. This varies from dealer-to-dealer, however, and some dealers have higher interest rates due to the risk involved with this sort of model.
Perhaps the biggest advantage of in-house financing is that the purchase process can be significantly easier than with traditional loan options. Since your dealer might offer a number of options and incentives based on the fact that the money is coming directly from them, you might have an easier time negotiating a favorable payment rate. Options and incentives of this nature can include rebates, flexible interest rates, extended warranties, increased customer services, and more. The process can be much faster and more efficient, with fewer hoops through which you have to jump. If you’re looking to get a car with a minimum of hassle and quickly, in-house financing can be a good option.