In-house financing – it is a type of financing provided by a company to its consumers. It is based on financing customer purchases through the seller's internal cash flow. In the model approach, a person who does not have sufficient financial resources takes a so-called credit directly from the seller. The latter, treating it on preferential terms, together with the latter, establishes a debt repayment plan with possible interest or commissions. In order to carry out these activities, retailers must have a well-developed loan department or a third party to handle the services in question. The model described above is the most common in the automotive industry, due to the fact that it allows sellers to close much more sales processes than when only cash is accepted.
In-house financing as a relationship building device
It often happens that banks granting consumer credit impose high costs of securing credit. This is due, among other things, to the fact that the margins achieved on transactions are not always as high as if the banks wanted (or are limited by law). Therefore, in order to finance the object of his desire, the consumer pays a sum significantly higher than the value of the car.
Taking into account the above fact, entrepreneurs meet consumers' needs by offering much lower interest rate loans, provided exclusively by this entrepreneur. Research shows that this has a positive impact on consumer relations with a given brand, in particular that it motivates consumers to return to the trader who offered credit on much more preferential terms when purchasing complementary goods.
Online methods of in-house financing
With the progressing technological development, it has become more and more popular to offer credits online. In order to speed up the sales process, companies made it possible for their customers to apply for credit via a website. In this case, among other things, they are obliged to provide information:
- Property status
- Civil status
- Length and type of employment and type of speech on the basis of which they are employed
- The requested value and own contribution and
- An object in connection with which they wish to obtain a loan.
In addition, a peer-to-peer solution that assumes that the lending business would not connect through any external banking systems but through a 256-bit bit encrypted bitcoin network that can be used to make transactions is now also becoming popular. It would be simple in principle - the consumer orders the granting of a credit. Then, after analysing its credit history and its ability to incur further financial obligations, the entrepreneur will decide whether or not to grant it a particular consumer credit. If the contract is awarded, the trader indicates that the consumer is trusted and that the contract can be transferred to the consumer's account. Only when the consumer confirms the receipt of the item (e. g. scans the item when it is handed over), does the contract turn into a liability on the part of the consumer.
- A. A. Jahanshahi, M. A. H. Gashti, S.A. Mirdamadi , K. Nawaser, S. M. S. Khaksar 2011, s. 256-259
- N. T. M. Demoulin, S. Djelassi 2013, s. 442-460
- A. E. Omarini 2018, s. 31-41
- Demoulin N. T. M., Djelassi S. (2013), Customer responses to waits for online banking service deliver, International Journal of Retail & Distribution Management, nr 6, s. 442-460
- Jahanshahi A. A., Gashti M. A. H., Mirdamadi S.A., Nawaser K., Khaksar S. M. S. (2011), Study the Effects of Customer Service and Product Quality on Customer Satisfaction and Loyalty, International Journal of Humanities and Social Science, nr 7, s. 256-259
- Omarini A. E. (2018), Peer-to-Peer Lending: Business Model Analysis and the Platform Dilemma, International Journal of Finance, Economics and Trade (IJFET), s. 31-41.
Author: Klaudia Urbańska