If you’re a potential car buyer who has ever had difficulty getting approved for traditional financing, you might have considered shopping at an in-house financing dealership. Otherwise known as “buy here pay here” car lots, these dealerships serve as a place for both buying a car and borrowing the funds to pay for it. In house financing dealerships provide convenience of a one-stop-shop, but be aware that there is a cost. In this article we’ll take a look at buying a car at an in-house financing dealerships, and highlight their pros and cons.
After reading this, you’ll be equipped to decide whether an in-house financing dealership would be a good option for you when you are ready to shop for your next car.
Pros of In House Financing Dealerships
Convenience
If convenience and a quick process is important to you, in house financing dealerships offer a level of ease and speed that traditional lenders often cannot provide. Instead of going back and forth between the dealership and the lender, searching for the most favorable loan term, buyers can simply complete the whole car-buying process in one place. These dealerships typically have a straightforward and streamlined process. This saves time and effort, since neither the dealer nor the buyer has to coordinate with another lender.
What’s more, the application and approval process for in-house financing is simple. These dealerships often focus on your verified income rather than long credit checks. This convenience allows buyers to efficiently purchase a vehicle without the hassle of navigating external financing options.
For those who need a vehicle without waiting on a bank’s approval, or who want a straightforward quick process, in-house financing can be a viable option.
Higher Approval Rates
Not everyone has the stellar credit score needed to get a traditional lender for a car loan. In fact, recently the percentage of Americans who have been denied for an auto loan has risen to 9.1%, the highest rate since 2017. For those borrowers, a buy here pay here lot with no credit requirement might offer a solution. A major advantage is these car dealers offer higher approval rates compared to traditional lenders. Their approval criteria is more lenient so it is easier for individuals with poor or no credit history to obtain a loan. By focusing on income verification and ability to repay, in-house financing dealerships help a. wider range buyers attain a vehicle.
Chance to rebuild credit
Are in-house financing loans reported to the credit bureaus? This is a question for you to be sure to ask the dealership. If their answer is yes, then this can be another pro, because. it provides a chance to rebuild credit.
When a buyer makes timely payments on an in-house financing loan, this can positively impact credit scores. And. since some of these dealerships typically report loan activity to credit bureaus, this kind of loan is a good way for borrowers to show their financial responsibility. Over time, this will improve creditworthiness, and eventually, a credit score.
Cons of In House Financing Dealerships
Limited Vehicle Selection
One notable drawback of in-house financing dealerships is the limited vehicle selection. Since these dealerships primarily cater to individuals with challenging credit, they may have a narrower inventory of vehicles available for purchase. Although everything is in one location, they may not offer as wide a selection of vehicles as other dealerships.
Higher Interest Rates
Another con of in house financing dealerships is high interest rates. Sure, these dealers will offer loans to people with lower credit scores, but they end up paying for it in the form of some of the highest rates around. Some dealers charge the maximum interest rate allowed in their state, which can be well over 100%.
When it comes down to it, if you decide to apply for a loan at an in house financing dealership, you should be aware of the interest rate you could be charged for the loan. Check this map to take a look at your state’s maximum interest rate.
Risk of Repossession
In-house financing dealerships tend to have stricter payment terms and consequences for defaulting on loans. If a borrower fails to make timely payments, the dealership may have the right to repossess the vehicle. That’s why it is critical for borrowers to carefully review the terms of the loan agreement and make sure they can meet the repayment obligations to avoid potential repossession.
Summing up the Pros and Cons of In House Financing Dealerships
In-house financing dealerships can be a viable option for individuals who have difficulty obtaining traditional bank loans or struggle with poor credit. These dealerships offer accessibility, convenience, and higher approval rates, allowing individuals to purchase a vehicle and potentially rebuild their credit. However, it’s important to consider the limited vehicle selection, higher interest rates, and the risk of repossession associated with in-house financing.
It is sometimes the case that borrowers might be better off working on improving their credit score, rather than taking an auto loan with a very high interest rate– which makes the vehicle actually. cost much more in the end.
But if you decide that committing to an in-house financing loan, is the best option for your situation, carefully review the terms and conditions, and ensure you can meet the repayment obligations. Meanwhile, take proactive steps to improve your creditworthiness over time so in the future you have a wider option of lenders.