House Financing is making a comeback in the Canadian market. When I first entered the car business in 1995, there were very few options for people who had credit issues such as bankruptcy, written-off accounts, judgments, or collections to obtain financing for a reliable vehicle. I was lucky enough to work for a dealership that had an in-house leasing company, and we were able to sell cars to these people before the sub prime lenders came on the scene.
Over the past several years, many companies have come into the Canadian automotive financing market to fill the need of most of these customers. They are relatively large national and international financing companies. They have signed the majority of the dealerships across the country to refer business to them. In 2005 there were no fewer than 7 such companies doing business all across the country, with many others doing business in certain markets. When writing this article in 2010, there are only 4 remainings, and they have tightened up on their lending practices because there is less competition in the marketplace. Of note, the 3 sub prime lenders doing business all across Canada that are no longer in the marketplace were international lenders, with 2 or the 3 based in the United States. When the financial crisis occurred in America, we lost them due to their parent companies consolidating their operations into the United States.
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This tightening up of lending practices is beginning to make a need for In House Financing at the dealership level once again. Today, more and more clients have credit problems and need special financing solutions as they no longer qualify for financing from the mainstream sub-prime lenders.
Many car dealerships are growing tired and frustrated at spending a lot of time and money advertising to get customers into their dealerships to sell them a car to have the lenders turn their customers down. This frustration has led many of them to take another look at an old concept and begin financing these customers themselves. So slowly but surely, there are In House Financing, In House Leasing, and Buy Here Pay Here programs starting to pop up all across the country to service this new marketplace.
There is very little difference in the various financing programs from a consumer point of view. They all work basically the same way. You have to give them a down payment that the dealers require to offset the risk they are taking in financing these types of high-risk clients. Most of the down payments range between $500 – $2000 and are either used as money down on loan in In House Finance and Buy Here Pay Here programs. The out of pocket money is used as a security deposit and first payment in most In House Leasing programs. The security deposit can be used to buy out the lease at the end of the term without having to come up with any money out of your pocket at that time. No matter what the money you give, the dealership is called, by the end of the term, it is used to pay down on your vehicle.
The other major difference in these programs is how the vehicle is registered by the Registry of Motor Vehicles in your province. With the In House Financing programs, the vehicle is registered in your name on the registration, and a chattel mortgage is placed on the vehicle at the Registry of Deeds in your province. The chapel mortgage makes it possible to repossess your vehicle if you default on the loan the same way a bank or finance company can. With the In House Leasing programs, the vehicle is registered in the leasing company’s name, with you being registered as the plate owner of the vehicle. The Buy Here Pay Here programs are usually run by a smaller dealership, and they sometimes register a chalet mortgage the same as the In House Financing Programs. Still, often they get the customer to register the vehicle in their name and then return to the dealership with the ownership paper and sign it over to the dealership. This way, if the customer defaults on the loan, the dealer registers the vehicle back into their name and repossess it from the customer. At the end of the day, it really doesn’t matter which program you choose to use if you don’t make the payments, they will repossess your car, but if you make your payments, you will not have any problems. Remember, all of these dealerships are interested in you keeping your vehicle. They usually understand if you will be a couple of days late with your payment as long as you let them know beforehand and make arrangements to get caught up right away.
These dealers live in the areas they work in and are usually very helpful and are willing to work with you. Most of these dealerships require that you place full coverage insurance on your vehicle. Still, some of the smaller Buy Here Pay Here dealers will allow you to have basic car insurance because the vehicles they sell are usually fairly inexpensive. Full coverage insurance doesn’t make sense.
The hardest thing about financing a vehicle through these dealers is usually finding them. With so many dealerships advertising Guaranteed Auto Approvals, Bad Credit – No Credit Car Financing, and the like, most of them do not have many options if the national finance companies decline you. You end up spinning your wheels looking for a dealer who will work with you, causing you to either give up or get frustrated and buy a cheap car privately with whatever money you can come up with.
To try to fill this problem with finding these dealerships, there is a new website launching called. Its sole purpose is to connect people who need special in-house financing options with dealerships in your area that provide house financing. The majority of the dealerships on the website will have their own in-house financing companies, with some of the dealerships having the Go Plan program. The Go Plan is a special financing program through Carfinco is a national financing program that is very close to an in house program.
A word of caution about these programs: remember that these programs are designed to help you re-establish your credit and get you into a reliable vehicle at a reasonable payment. It would be sporadic that one of these companies will finance a 2009 Chevy Silverado Diesel or 2010 Ford Mustang GT to you because their programs just are not designed for that. But if you are serious about buying a vehicle and re-establishing your credit, they are a good option for you.