What Is In-House Financing?
In-house financing, also known as owner financing or dealer financing, refers to a situation in which a seller extends some form of credit to a buyer, without the involvement of a third party. In this case, the seller is the lender, and has claim over the property sold till the debt is fully repaid. Dealer financing can allow consumers to acquire assets even if their credit rating is unacceptable to other lenders.
A common example of this financing is buying a car from a buy here pay here dealer. In recent years, most consumers with bad credit have opted for the idea in which they provide the car dealer with a down payment, then clear the outstanding balance through weekly or biweekly payments. The terms and conditions of this loan are governed by the same laws used in other auto loans, but usually carry higher interest rates than other financing options on the market. As much as this type of financing is a staple of most car dealerships today, there are limitless scams perpetuated by rogue dealers. Here are tips to avoid in-house financing scams:
Avoiding In-House Financing Scams
As much as the monthly payment may seem attractive, you need to pay much attention to the overall price and interest rate. Once the buy here pay here car lots dealer has established your price range, they may extend the loan to fit your payment plan. For example, you may end up paying for a car for 7 years instead of 4 or 5 without even realizing it. Moreover, the extra interest will keep adding up over time, so be safe and be careful and read everything well before signing.
Reading the fine print would prove beneficial. For example, an ad may read: “Only USD $2,999 or USD $99/month!” The USD $99/month may sound good, but if the fine print states that the payments apply for five years, then you will end up paying $6K; which is double the actual price of the vehicle. So it is important to read the fine print in order to make an informed decision.
You need to know your credit rating otherwise you are creating room for car dealers to scam you. A common scam is running your credit and telling you that it’s bad. The dealer will then tell you that he’s not sure if they can finance you, but will inquire and inform you. A few hours later he delivers the good news that the management has agreed to finance you. So if you know your credit rating, no one will scam you based on the same.
Sometimes you may see the “pay no interest for six months!” ad and enroll immediately. That may indeed be true but once this period ends, your interest rates will suddenly shoot. This scam majorly focuses on people with good credit because bad credit consumers would have high interest rates anyway.
It is important to go through the contract word by word before signing anything as this is what determines everything. If you sign the in-house financing dealers contract without knowing its content, you will be dismayed to discover that you agreed to pay for warranties and other things that you were not even aware of. Just read all the details and it will be a great way to get back on track financially, get a great car and repair your credit by paying your payments on time.