What are in-house financing dealerships?

Couple signing the documents to buy a new car at a dealershipImage: Couple signing the documents to buy a new car at a dealership

In a Nutshell

In-house financing dealerships — often called “buy-here, pay-here” car dealerships — allow you to buy and finance a used car in one place. These dealerships could be your best bet for getting a car loan if traditional auto lenders are turning you down. But beware: Taking this route can be costly.
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If you’re having trouble getting a car loan and your credit is the reason, an in-house financing dealership may be able to help.

In-house financing dealerships, commonly called “buy-here, pay-here” dealerships, offer financing directly to car buyers. Since these dealerships finance car purchases themselves, they don’t have to get approval from a bank or other lender to grant your car loan. Buy-here, pay-here dealerships set their own loan approval requirements.

This might sound much easier than the typical car loan process. The downside? You may end up paying much more in interest buying a car this way.

Benefits of in-house financing dealerships

People with rough credit, or little to no credit history, may not be able to get approved for a traditional auto loan. They also might not have the money they need for a car down payment.

But in-house financing dealerships provide loans independently and at their own discretion, free of the credit and down payment requirements that traditional auto loans may impose. This makes it possible for some people to get an auto loan when they wouldn’t be able to otherwise.

Can you get a car loan with bad credit?

The car you might be able to get from a buy-here, pay-here dealership likely won’t be brand new (and may not be your dream car), but there’s a chance it’ll at least get you on the road.

Downsides of buy-here, pay-here dealerships

While looser lending requirements might get you the set of wheels you need, financing from a buy-here, pay-here dealership has some big drawbacks.

First, you’ll likely pay a higher interest rate than you would with a traditional car loan. The loan may even be a precomputed interest loan, which can be a big financial pitfall.


What is a precomputed car loan — and why avoid them?

When reviewing an offer from an in-house financing dealership, watch out for the precomputed interest loan.

Unlike simple interest loans, which are more typical in auto financing, precomputed interest loans calculate the amount of interest you’ll pay over the full term of the loan — and require you to pay all of that interest, even if you pay off the loan faster.

This means you can’t save money by making early payments or by refinancing your car loan at some point if your credit improves.

Buy-here, pay-here car dealerships may charge more for the cars they’re selling, too. Since you can only use in-house financing for cars on that dealership’s lot, you’re stuck buying from that particular dealer’s inventory. This means you can’t shop around for a better deal.

Additionally, buy-here, pay-here dealerships can lend as much they want, and may set their prices accordingly. This means you can end up in far more debt than your car is worth, putting you “upside down” on your car loan from the get-go.

Are in-house financing loans reported to the credit bureaus?

Buy-here, pay-here car dealerships may or may not report your loan to the consumer credit bureaus — it’s up to them. Make sure to ask before you buy if you’re hoping to have payments reported to help you build your credit.

One other potential negative to consider: While in-house financing dealerships may not check your credit, some will offset the risk of lending by other means. One way is to install a device in your car so they can disable the vehicle or more easily repossess it if you miss a payment.

How to find in-house financing dealerships

It’s usually not hard to find an in-house financing dealership. Look for signs that say things like “buy here, pay here,” “no credit needed,” “no credit — no problem” or “no credit check necessary.” A quick search online for buy-here, pay-here car dealerships or in-house financing car dealerships, plus your city’s name, may also do the trick.

Before heading to a dealership in person, call and ask if they offer in-house financing that might meet your needs. And talk to friends or family who might have ideas about specific car lots to avoid.

Bottom line

While an in-house financing dealership may seem like your only option to buy a car if you have no credit or iffy credit, you should definitely check other options first.

Remember, buying a car from a buy-here, pay-here dealership will likely cost you more than financing a car through a traditional lender, so it’s always best to start your search with banks, credit unions and other car dealerships.

If you run into trouble getting traditional financing, consider finding a co-signer or holding off and improving your credit before purchasing a car, if you can wait.

About the author: Lance Cothern is a freelance writer specializing in personal finance. His work has appeared on Business Insider, USA Today.com and his website, MoneyManifesto.com. Lance holds a Bachelor of Business Administration in … Read more.