In house financing

In house financing
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Methods and techniques

In house financing is one of the seller's financing types, in which the selling company grants a loan to the buyer in order to purchase products (goods and services). The financial resources provided to the client for the transaction allow to reduce the influence of the financial sector on the selling company[1]. Such methods are commonly used in car sales, but more and more often are also used in the sale of consumer goods. Companies provide consumers with greater payment flexibility. When buying a new TV the customer can pay in several instalments, instead of paying in advance. In this way, sales companies support and facilitate the purchase process for their clients[2]. In order to be able to provide this type of loan, the enterprise must have stable lending activity within a company or partner who will lend to the company's clients. The increased number of transactions concluded is based on the use of in house financing[3].

The advantages of in house financing[edit]

Loans granted to customers directly by the selling companies carry a number of benefits[4]:

  • Improving the purchasing process

In house financing gives the buyer the opportunity to obtain a loan in a shorter time (direct granting of a loan). Most often the sellers, in addition to the accelerated process, additionally offer flexible interest rates and guarantees.

  • The simplicity of use during the transaction

Legal provisions regarding offering internal financing are not as demanding as in the case of bank financing. Because of this, buyers have easier access to get a loan if their creditworthiness is poor.

  • Creating creditworthiness

The credit assessment can be increased by using internal financing. This loan method can help the buyer improve creditworthiness[5]

Footnotes[edit]

  1. Warren C. (2009), The House Loan Process in Ten Easy Steps, Pearson Education
  2. Finnerty J. (2011), Project Financing: Asset-Based Financial Engineering, John Wiley & Sons
  3. Bollard A. (2013), Crisis: One Central Bank Governor & the Global Financial Collapse, Auckland University Press
  4. Evans G. L. (2008), Secrets of Auto Financing: Non-Prime Auto Financing and What You Should Know Before You Buy, G. L. Evans
  5. Fellow M. H., Hijazi S. T. (2010), A Critical Analysis and Comparison with Conventional Mortgage, Islamic Housing Finance

References[edit]

Author: Patryk Schmidt