In-house financing for cars is an alternative way to say buy-here-pay-here (BHPH) or tote-the-note financing. Occasionally, a company that offers in-house financing just happens to have it own finance company, but it’s still the same premise.
This type of financing is directed at people who have low credit scores or employment that is difficult to verify to the satisfaction of a more traditional lender. With this type of lending, everyone is approved, so as long as they have the required income and down payment in hand–one reason these dealers often use the slogan “your job is your credit.” Easy approval is the only good aspect of in-house financing.
Downsides to In-House Auto Loans
There are many downsides to in-house financing. The first is that the vehicles usually have high mileage and are of lower quality. The first thing a tote-the-note dealer does is double the price of the vehicle, so, if the vehicle is worth $5,000, you will have to buy it for at least $9,000, probably more. Next, you will be hit with an absurd interest rate. It is nothing to have to pay 18 percent or higher at a BHPH dealership. As if that was not abusive enough, these ”loans” must be repaid within 24-30 months. That means that you will have a cumbersome monthly payment, to say the least. As a final kick in the pants, the majority of these ”lenders” do not report the activity to the credit reporting agencies unless you default. Since positive activity is not reported, your credit score does not improve, keeping you in the cycle of needing to use BHPH dealerships.
Boosting Your Credit for Car Loans
You do have alternatives. The first is to repair your credit and raise your credit score. You can start by going to annualcreditreport.com to get your free credit reports. With those in hand, look for errors and collection accounts that you may have forgotten about. If possible, get a credit card, even if it is a secured card (not pre-paid). Credit cards are the fastest way to boost your credit score if you keep the balance under 25 percent of the credit limit.
A Better Alternative
One other option is to shop online. We work with an extensive nationwide network of dealers and lenders who are able to assist people who have credit problems, and we make it easy to submit your application electronically. We then work hard to place it with company ready to approve your credit, even if you have some serious issues on your credit report. A local lending specialist will guide you through the process, answering your questions and helping you secure the best rate and terms possible.