In House Financing Meaning
In House Financing, refers to payment flexibility or loans offered by the seller to customer to buy products from them, so that the seller doesn’t need to wait till the purchaser’s loan gets processed and the buyer doesn’t need to pay the full amount at the same time as it can be divided into several months.
When a seller offers the purchaser with the option of credit on his own or through a single third-party financier to purchase the goods, then it is called as in-house financing. This helps the purchaser to buy the product, as they can pay in monthly installments.
How does it Work?
In-House Financing is done when the company or seller has a strong credit providing facility or if they have a deal with a single credit provider to finance their customers, it simplifies the work of both the seller and the customer.
If a customer purchases a product and he doesn’t have money to pay the product cost is split into monthly based on the plans they choose and credit is provided for them. There won’t be much formalities or time taken for processing these loans as they are provided with the seller’s own risk.
Reasons for In House Financing
- If a customer has a low credit score or doesn’t have a good credit history then he may not be eligible to get a loan from a bank or any other financing companies, they can use this in-house financing facility.
- If a financing company takes time to process and the seller needs that product immediately he can choose this option.
- The seller can attract more customers with this as there won’t be many procedures and they won’t take much time to process those loans.
- Purchaser doesn’t need to pay any down payment and the entire amount can be divided among a few months which make their burden less.
- The buyer has an option to negotiate with the seller about payment terms, rate of interest and down payment.
Example of In House Financing
Let’s consider Mr. X has a branded electronics showroom and he is selling all items from TV, washing machines .etc. A is a customer who wants to purchase a TV which costs $100, he has no money to make down payment or initial payment and he is not eligible to get loans from banks or other financing companies.
X here provides Mr. A with the In-house Financing option where Mr. A can pay the money 12 months, with 5% interest rate per month and the procedure is very simple that he can take the loan within minutes.
In this example the loan provided by the seller at his own discretion and the payment terms, as well as the interest rate is negotiated with the seller hence it is known as In-house Financing.
- Facilitates customer with instant loans instead of the time-consuming process.
- It is helpful for people who can’t get loans from banks and other financial institutionsFinancial InstitutionsFinancial institutions refer to those organizations which provide business services and products related to financial or monetary transactions to their clients. Some of these are banks, NBFCs, investment companies, brokerage firms, insurance companies and trust corporations. as it is flexible with terms of issuing loans to customers.
- Whether you pay down payment or not it is not considered.
- For the seller, the customer will be retained and he will purchase again with them.
- Seller provides discounts to that customer who opts for their in-house financing options that banks can’t offer the customers.
- Once the loan is closed by the customer it increases the credit score of the customer.
- Customers can negotiate with the seller for interest rate, down payment, discounts, etc.
- The seller decides the interest rate which will be higher than the banks and other financial institutes.
- The customer may end up in paying more as the price will be with a higher interest rate
- The seller also has to take care of whether the customer pays his dues correctly, as the loan is given on his own discretion.
- In some cases, the seller sells only used good for in-house financing, like the used car dealership.
Though in-house financing has many advantages like less time consuming, not much paperwork and flexibility with terms of payment, it also has the above said disadvantages. A customer must choose efficiently the terms of payment and interest rate to be beneficial from such financing options.
This has been a guide to In House Financing and its Meaning. Here we discuss example, how does it work, reasons for in house financing along with advantages, and disadvantages. You can learn more about financing from the following articles –