If you run a business that sells high-ticket items—whether it's cars, furniture, jewelry, or industrial equipment—you've likely encountered a customer who wants to buy but doesn't have the cash upfront. Traditionally, you would send them to a bank. But what if you were the bank?
This is the core concept behind in-house financing. In 2026, as interest rates fluctuate and traditional bank lending tightens, more merchants globally are turning to this model to rescue lost sales. But what is in-house financing exactly, and how does it differ from just using a credit card processor?
Definition of In-House Financing
In-house financing involves a merchant or retailer extending credit directly to their customers to purchase goods or services. Unlike third-party financing (where a bank pays you and collects from the customer), in this model, the customer owes the money directly to you.
It eliminates the middleman. You maintain the relationship, you set the terms, and importantly, you collect the interest.
How Does It Work?
The process is typically straightforward but requires infrastructure:
- The Sale: A customer chooses a product (e.g., a $15,000 car) but can't pay the full amount.
- The Agreement: You agree to let them take the product today in exchange for a down payment (e.g., $2,000) and a contract to pay the rest over time.
- The Payments: The customer makes monthly payments (principal + interest) directly to your business.
- The Risk: You hold the "paper." If the customer stops paying, it is your responsibility to collect or repossess the asset.
Common Types of In-House Financing
- Buy Here Pay Here (BHPH): Most common in auto sales. The dealership is both the seller and the lender.
- Retail Installment Contracts: Used by furniture and electronics stores.
- Net Terms (B2B): In B2B sectors, suppliers often give clients "Net 30" or "Net 60" days to pay. This is a form of short-term in-house financing.
In-House vs. Third-Party Financing
Why would a merchant take on the risk of lending? It usually comes down to control versus convenience.
- Third-Party Financing: You get paid immediately by a bank. It's low risk, but you pay a fee (merchant discount), and you have zero control over who gets approved. If the bank says "no," you lose the sale.
- In-House Financing: You accept the risk of default, but you capture 100% of the interest revenue and can approve customers with lower credit scores who would otherwise walk away.
What You Need to Get Started
You can't manage a loan portfolio on a notepad. To offer in-house financing successfully, you need:
- Capital: You need enough cash flow to replenish inventory while waiting for customer payments.
- Technology: A Loan Origination System (LOS) to process applications and a Loan Management System (LMS) to track payments and calculate interest.
- Compliance: Adherence to local lending laws (Truth in Lending Act in the US, Consumer Credit Act in the UK, etc.).
"In-house financing transforms a one-time transaction into a long-term relationship. It's not just a payment method; it's a loyalty engine."
Conclusion
Now that you know what in-house financing is, the next logical question is: is it right for your business? It offers higher margins but requires operational discipline.
To dive deeper into the strategic trade-offs, read our detailed guide on the Pros and Cons of Offering In-House Financing, or explore Lendisys's platform designed to make merchant lending simple.