Direct loans are loans where the creditor lends to the debtor without intermediaries involved in the transaction. In contrast, indirect loans are loans where intermediaries help facilitate the transaction between the creditor and the debtor. In the context of auto loans, a direct auto loan most often refers to an auto loan from a financial institution such as a bank or a credit union, but can also refer to in-house financing where it is the dealership that is lending to the customer. An indirect auto loan is financed by a financial institution but offered to the customer by the dealership.
In general, direct auto loans from financial institutions are the cheapest but also hardest to get while direct auto loans from dealerships are the exact opposite in that they are the most expensive but easiest to get. Indirect auto loans tend to occupy the middle ground between these two extremes. This is because the dealerships are the ones borrowing from financial institutions when indirect auto loans are offered to their customers. The dealerships can get better borrowing rates than their customers but will lend to them at a mark-up in order to profit from the indirect auto loans. Despite this mark-up, indirect auto financing is still cheaper than in house financing because the dealerships are ultimately drawing on the funds of institutions with vastly greater resources when offering indirect auto loans.
Getting Indirect Auto Loans
You can get an indirect auto loan by approaching an auto dealership, choosing one of its vehicles, and then asking for help with financing from the dealership. The dealership can help you obtain a loan from one of its affiliated financial institutions based on the state of your finances and the price of the vehicle that you are planning to purchase. For best results, you should still conduct some research beforehand to figure out the limits of your budget, the general auto loan interest rates for someone with your financial status, and the general price of the vehicle you are planning to buy. Knowing this information means that you can tell if the dealership is overpricing their products and can react accordingly to negotiate them down to something more reasonable.
We allow you to apply online for financing through our vast network of indirect auto lenders. Our advanced application placement system finds a dealer in your area who can approve you based on your income and credit profile. There are no obligations for this service, and zero fees.
Advantages and Disadvantages of Indirect Auto Financing
The biggest advantage of indirect auto loans is their convenience. You don’t need to visit multiple lenders to compare prices and weigh conditions against one another. All you have to do is show up at the dealership, pick out a vehicle, pick an indirect auto loan, and walk out the owner of your chosen vehicle. There is also the possibility of the dealership being more willing to work with you if you run into trouble regarding the auto loan, because of the nature of your business relationship with them. However, this varies heavily depending on the dealership in question.
The biggest disadvantages of indirect auto loans are their higher costs compared to direct auto loans from financial institutions. Since dealerships control both the prices of the vehicles and the terms of the loans, they can and likely will manipulate both in order to get you to pay more while concealing their intent as much as possible. For example, a dealership can offer you indirect auto financing with lower monthly payments but longer repayment terms – this can end up resulting in you paying more due to higher interest. Doing your research beforehand is the best way to protect against such manipulation if you are set on financing your vehicle through an indirect auto lender.