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The Ultimate Guide to Car Dealerships’ In-House Financing in Canada

By Arthur Dubois | Published on 29 Sep 2023

car dealership’s in house financing canada

    Car dealerships’ in-house financing can conveniently provide access to funds for Canadians looking to buy a car. While arranging payments for your car at the dealership may seem like one process, you have a variety of options. Did you know that the money can come from the parent company, banks or the dealership itself? Most people don’t realize the range of choices they can make to get a better deal.

    In this comprehensive guide, we will explore everything you need to know about in-house financing. Along the way, you’ll gain valuable tips for navigating this process.

    Understanding In-House Financing

    Before delving into the intricacies of car dealerships’ in-house financing, let’s cover the basics. When you walk into a car dealership, you not only enter a place where you can browse and buy vehicles. You also meet people who can refer you to the right financial institution so you can make your purchase. 

    Even if you sit at a dealership desk to work out the details, the loan can flow from three possible sources:

    • The carmaker’s financing company – For example, Ford Credit and GM Financial offer loans through their company dealerships, but you repay the financing arm of the manufacturer. 
    • Partner lenders – Big banks and specialized lenders work with dealerships to facilitate loans, which go through these third parties.
    • The dealership itself – To accommodate potential buyers with bad credit scores, the dealership extends bad credit car loans, typically at higher interest rates. This fits the description of in-housing financing despite the illusion created by the other methods.

    In-house financing allows you to complete the entire car buying process in one location using the dealership’s own money. You may see it advertised as ‘buy here, pay here’ options. As a result, you skip the hassle of visiting multiple institutions and reduce the amount of transactional paperwork involved.

    Benefits of In-House Financing

    On the up side, in-house financing can have more leniency when it comes to credit requirements. Car dealers want the sale, so they will work with people who have less-than-perfect credit or a limited credit history.

    Traditional lenders often have strict criteria when it comes to approving car loans. Consequently, some individuals find it hard to secure financing. After all, banks and credit unions worry more about getting the loan repaid, not whether you get the car you need.

    In-house financing, on the other hand, allows car dealerships more flexibility in assessing your creditworthiness. They may consider factors beyond just your credit score, such as your income, employment history and even your personal circumstances.

    In-house financing also offers convenience. For instance, you arrange the terms while sitting in the dealership after negotiating the vehicle’s price. Since you avoid a third party, the process can unfold quickly and easily. Afterward, you make your payments to the dealership for a new or used car.

    Potential Drawbacks of In-House Financing

    While in-house financing offers several advantages, beware of potential drawbacks. Dealerships may charge higher interest rates compared to traditional lenders due to the increased risk they assume by extending credit directly to customers. Carefully review the terms and conditions of the financing agreement to ensure you can afford them over the loan’s term.

    In some cases, in-house financing contracts don’t allow early repayment or flexibility in their terms. By skipping the bank’s scrutiny, you also skirt processes that protect you from an unscrupulous lender. Check for reviews to see if your chosen dealership has earned a good reputation.

    Furthermore, some dealerships may require higher down payments to mitigate their risk by seeking a more significant financial stake. Likewise, they may impose stricter vehicle selection criteria, offering a vehicle more suitable for resale if things go wrong.

    Finally, check to see if the dealership reports payments to credit bureaus, like Equifax, as you rebuild your credit score. If they only share negative instances, then you may wish to go elsewhere. However, if they help bolster your case, that’s a real plus.

    Before committing to in-house financing, evaluate your financial situation and consider your options. You may want to compare the terms and rates offered by different dealerships or explore credit unions or online lenders. By researching the terms of the financing agreement, you’ll make a decision that aligns with your financial goals and needs.

    The Process of In-House Financing in Car Dealerships

    Now that you understand in-house financing, let’s delve into how you secure financing directly from a car dealership.

    Before you head to the dealership, take some time to prepare. First, assess your financial situation and determine your budget. This will help you gauge how much you can afford to spend, including monthly payments and related expenses. By doing so, you make sure you don’t end up with a car that stretches your finances too thin.

    After budgeting, get a copy of your credit report and review it for any errors or issues. Your credit score plays a significant role in determining the terms of your car loan, including the interest rate. By knowing your credit report beforehand, you can address any potential concerns or discrepancies before approaching the dealership. This will help you present a stronger financial profile and potentially negotiate better terms.

    The Application Process

    Next, visit the car dealership and begin the in-house financing application process. This typically involves providing personal information, employment details and financial data.

    The dealership will then review your application and assess your creditworthiness. They will consider multiple factors, such as your credit score, income, and employment stability. This evaluation helps them determine the loan amount, interest rate and repayment terms that they can offer you.

    Notably, dealership car loans often come with higher interest rates compared to traditional bank loans. This happens because the dealership takes on more risk by extending credit to individuals with less-than-ideal credit scores. However, you can still negotiate an affordable loan, especially if you have healthy finances or make a larger down payment.

    Understanding the Terms and Conditions

    Once you get approved for in-house financing, carefully review the terms and conditions of the loan agreement. This document outlines the specifics of your loan, including any fees or penalties.

    Pay close attention to the interest rate, as this will significantly impact the overall cost of your loan. Similarly, the loan term and repayment schedule will determine the number and amount of your monthly payments.

    If you have any questions or concerns about the terms, ask the dealership for clarification. Remember, you want to feel comfortable with the terms and confident in your ability to make this significant purchase.

    Comparing In-House Financing to Traditional Auto Loans

    When purchasing a vehicle, Canadians have different financing options to choose from. While in-house financing works for many, comparing it to traditional auto loans helps you decide what suits your financial goals.

    Start by comparing interest rates. Traditional lenders, such as banks or credit unions, may offer lower interest rates if you have a good credit score. Conversely, in-house financing rates may come in higher, reflecting the increased risk of dealerships offering loans directly to customers. 

    Loan terms can also differ between the two options. In-house financing loans may have shorter terms, with higher monthly payments that allow you to pay off the vehicle quicker. Traditional auto loans, on the other hand, often come with longer terms, resulting in lower payments over a longer period.

    Also, factor in your credit score. If you have a low score, you may face challenges securing a traditional auto loan from a bank or credit union. In-house financing, however, may have more lenient credit requirements for individuals with less-than-perfect credit. Consider your credit situation and assess which option aligns best with your unique circumstances.

    Additionally, take into account repayment flexibility. Banks may work with you if you encounter temporary financial difficulties, such as job loss or unexpected expenses. However, discuss this flexibility beforehand to obtain a clear understanding of their policies and procedures. This will make you aware of any potential fees or penalties associated with missed or late payments.

    In-House FinancingTraditional Auto Loans
    Minimum Credit Score580 to 650600 to 850
    Interest Rate Range7 to 16%4 to 8%
    Average Terms1 to 7 years3 to 7 years
    Repayment FlexibilityMore rigidMore flexible
    Penalties and Extra FeesPossible for documentation or staff commissionsMore clearly documented due to regulations

    Finally, evaluate the reputation and reliability of the dealership. Researching customer reviews can give you insight into whether they have a history of treating customers fairly and transparently.

    Ultimately, the decision between in-house financing and traditional auto loans depends on your individual circumstances, financial goals and credit situation. Carefully weigh the pros and cons of each option against your long-term financial plans. If needed, consult with a financial advisor. By doing so, you can achieve your vehicle ownership goals.

    Tips for Navigating In-House Financing

    Now that you have a comprehensive understanding of in-house financing, these valuable tips can help you navigate the process:

    Assessing Your Overall Costs

    Before approaching a dealership for in-house financing, take the time to evaluate all expenses related to car ownership. This will help determine how much you can comfortably afford to spend on monthly payments.

    Tally up the costs for insurance rates, car, maintenance, tolls and other bills expected once you hit the road. The number may surprise you, so get your head around it before going too deeply into debt.

    Negotiating the Best Deal

    Don’t hesitate to negotiate with the dealership to secure the best deal possible. Research the prices of similar vehicles, while preparing to walk away from unsuitable terms. Get ready to negotiate on the interest rate and other aspects of the financing offer.

    Negotiating can save money and lock in more favourable loan terms. By doing thorough research and acting assertively, you can potentially lower your monthly payments. Even better, you can secure a lower interest rate, ultimately lowering your purchase price in the long run.

    Protecting Your Credit Score

    Lastly, protect your credit score while navigating in-house financing. Making timely payments will maintain a positive credit history and potentially improve your credit score.

    Additionally, ensure that the dealership reports your payments to the credit bureaus to positively impact your credit profile. By having a good credit score, you can have access to better financing options in the future.

    Car Dealerships’ In-House Financing in Canada: The Bottom Line

    When shopping for a new car, you already face many decisions about make, model and costs – on top of financing options. By understanding the pros and cons of car dealerships’ in-house financing in Canada, you can pick your best option.

    So, take the time to assess your finances, research the best deals and prioritize a good credit score. By doing so, you’ll make the most of in-house financing and enjoy the benefits it offers. Soon, you’ll drive away in the car of your dreams.

    FAQs About Car Dealerships’ In-House Financing in Canada

    What does in-house financing mean at Canadian car dealerships?

    In-house financing at Canadian car dealerships refers to a financing arrangement where the dealership itself extends credit to the buyer.  This gives them an option to purchase a vehicle, instead of relying on a bank or other financial institution. This conveniently helps buyers who may have difficulty securing a loan through traditional lenders due to credit issues.

    Does in-house financing build credit in Canada?

    Yes, in-house financing can help build credit in Canada if the dealership reports payment history to the major credit bureaus. However, not all dealerships do this, so confirm with the dealership if building credit ranks as a priority for you.

    Does in-house financing typically involve a credit check in Canada?

    In-house financing can sometimes involve a credit check in Canada. However, many dealerships offering this type of financing are more lenient or flexible with credit requirements. Some may not perform credit checks at all, focusing instead on the buyer’s income and stability.

    How does in-house financing work in Canada?

    In-house financing in Canada works by the car dealership providing loans directly to buyers instead of involving a third-party lender. The buyer agrees to a set interest rate and repayment schedule directly with the dealership. Payments are typically made directly to the dealership on a weekly, bi-weekly, or monthly basis, depending on the loan’s terms.

    What dealerships do in-house financing in Canada?

    In-house financing is more commonly found at used-car dealerships in Canada, but some new car dealerships also offer this service. It spans across various dealerships, from smaller, independent ones to larger, more established ones. Currently, the list includes Ford, Toyota, Honda, Nissan, Hyundai, Volkswagen, BMW, GM and Mercedes-Benz. For precise options and to understand the terms and conditions,inquire directly with dealerships. Next, conduct thorough research to identify the most suitable arrangement according to individual needs.

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    Arthur Dubois is a personal finance writer at Hardbacon. Since relocating to Canada, he has successfully built his credit score from scratch and begun investing in the stock market. In addition to his work at Hardbacon, Arthur has contributed to Metro newspaper and several other publications