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In-house financing is a situation in which a seller extends credit in some form to a buyer, without the need for intervention by a third party. With this approach, the seller effectively becomes the lender, and has claim on the property sold until the debt is discharged in full. Sometimes referred to as dealer financing or owner financing, in-house financing can make it possible for a consumer to still acquire an asset even if his or her credit rating is not acceptable to other lenders.
One of the most common examples of in-house financing is with the purchase of a used vehicle from a dealer. In recent years, the concept of providing the dealer with a down payment, then making a payment on the outstanding balance on a weekly or biweekly basis has become popular, especially among consumers who have less than perfect credit. The terms and conditions found in these types of financing contracts are governed by the same laws that apply to other types of car loans, but often carry a rate of interest that is somewhat higher than other loan options on the market. This is because the dealer extending the vendor financing uses a more liberal process of evaluating the credit worthiness of the potential buyer.
With in-house financing for used vehicles, dealers usually require that the customer has a steady job and earns a minimum amount of gross income per calendar month. Some dealers will also require that the applicant have at least a year of steady employment with the current employer in order to be eligible for the financing. The client must also have a verifiable permanent address, and be able to provide two to three personal references.
The same general approach is sometimes used with selling real estate. Here, the owner of the property agrees to accept a specific down payment, and provides the buyer with a contract detailing a rate of interest and how that rate is applied. The contract will also specify the number of monthly payments that are to be remitted to the former owner over the life of the contract, and the actual figure that must be remitted as part of each of those monthly installment payments. As with in-house financing for used cars, the contract used with owner-financed real estate deals must follow all governmental regulations that apply to the sale of real estate in the area where the property is located.
In-house financing can sometimes be used as a means of rebuilding damaged credit. Many businesses that offer this type of financing regularly report client activity to one or more of the several credit bureaus. Assuming that the customer is diligent in paying off the financing according to the terms of the contract, he or she may be in a position to obtain financing for future purposes from third party lenders that offer a lower rate of interest.