In-House Financing vs. Full F&I Services: Which is Best for Your Dealership?

By: Web Finance Direct

Have you ever heard the phrase, “buy here, pay here”? In the dealership world, this is a common way to describe in-house financing. For potential customers, the thought of one-stop shopping is an appealing one, especially when it comes to getting loans for their desired purchases. Take the auto industry, for example. By the end of 2019, Americans combined for $1.3 billion in car loan debt. The total number of active loans has grown at a steady pace since the early 2010s. So, what is in-house customer financing? Are there other options for your business? In this blog, we’ll discuss the pros and cons of in-house financing and why partnering with a full F&I services company may actually be the right choice for your dealership. 

How Does In-House Financing Work?

If the name didn’t already give it away, in-house customer financing refers to a method in which the dealerships themselves offer loans to their customers looking to make purchases. This tactic eliminates a dealership’s need for banks and credit unions to provide financing as it embraces a direct-to-consumer model. There are several pros and cons to consider when thinking about offering in-house financing.

Dealerships Set Their Guidelines

As mentioned, in-house financing gives dealerships the power to set their financing requirements and guidelines. By offering your customers in-house financing, you’ll no longer need to rely on banks, credit unions, or third-party financing platforms to complete sales of your cars, boats, RVs, and powersport vehicles. This is a pro of in-house financing because it gives dealerships much more financial freedom. The answers to who qualifies for a loan and what the interest rates will be are all answered and determined by the dealerships. This can greatly increase revenue as more customers begin to qualify for loans.

In-House Financing Speeds Up the Loan Approval Process

Once your dealership determines who qualifies for a loan, in-house customer financing can make the process of selling your vehicles much faster. Because you no longer need to wait on banks and credit unions to review customer applications, your dealership saves time and can begin making more sales. Compared to direct lending, where consumers apply for loans through a bank or credit union before making a purchase, the in-house model allows you to eliminate the wait times customers could face when they apply for financing. In certain cases, it could take borrowers days to receive a decision regarding their loan application if they go to a bank or credit union first.

Higher Risk 

If there’s one thing any dealership should know when considering the in-house model, it’s that customers can be unpredictable. Your dealership may decide to only offer in-house financing to those with higher credit scores, however, you still take on a lot more risk when writing the loans yourself. If customers begin to miss payments or default on their loans, your bottom line will more than likely be affected. As your business grows, your dealership must continue to keep a close eye on who you sell loans to.

In-House Financing Requires More Capital

Not only is there more risk associated with the in-house model, but your dealership has to front a lot more money to consumers if you choose to follow the path of in-house lending. This is a tough barrier of entry for smaller businesses to tackle, as the risk of missed payments and loan defaults casts its shadow. There are other options for dealerships, though. While the in-house model is an exciting one, partnering with an F&I services company could hold the answer to higher sales.

How Full F&I Services Can Transform Your Dealership

We’ve discussed in-house customer financing, but partnering with a trusted F&I services company like Web Finance Direct is another great option for dealerships hoping to offer financing to customers. We help your dealership increase profits and provide customers with exceptional service by giving you access to our diverse network of lenders. A partnership with a full F&I services company comes with a lot of benefits.

Your Consumer Base Could Grow

One of the biggest benefits of partnering with a full F&I services company like Web Finance Direct is your dealership’s ability to sell to more consumers. When you work with an F&I services company, your business can offer financing to a wider range of borrowers, including those with less desirable credit.

Your Dealership’s Reputation Will Grow 

In today’s marketplace, flexibility is king. As we mentioned, more and more Americans are turning to loans for their big purchases, so it’s important to offer financing options to customers as a dealership. The power of word-of-mouth marketing is high and as more customers discover your dealership and financing and services options, which can include back-end products like gap insurance and extended warranties, your reputation will grow.

Your Dealership Can Save Money

By outsourcing your F&I services, you’ll save yourself the time and money it would take to independently provide loans to customers. Because Web Finance Direct specializes in F&I services and correspondent lending, you’ll be able to focus your efforts on the most important part of your business: making sales.

Ready to explore your dealership’s future in financing? Our team is ready to show you how our premium F&I services can help take your sales to the next level. Contact us to get started today.

Financing FAQs

What is in-house financing?

Think of the phrase “buy here, pay here.” Through in-house financing, dealerships offer loans directly to their customers, eliminating their need to work with banks or credit unions for loan services.

Is it better to do in-house financing?

Not necessarily. If your dealership has the capital and is willing to take on the risks, in-house financing could be a great way to increase sales and revenue. Other options may be better for smaller businesses that don’t meet the in-house financing requirements, such as partnering with a full F&I services company.

Why do dealerships offer in-house financing?

Offering in-house financing is a way to increase sales. By giving customers access to financing options, dealerships can be more competitive in today’s market.