Choosing Direct or Indirect Auto Finance

Before talking about what to choose between direct and indirect auto finance, let’s know what it is and how it affects the loan. Indirect auto finance is said when the applicant takes financing from a dealership or any similar company such as buy here pay-here car lot, used car lot or cheap car lots. Very few individuals know the fact that dealerships send the auto finance applications to lenders who are working with them and they decide whether the loan has to be approved or not. If the loan is approved then the interest charged is informed and the dealership passes on the knowledge to the applicant. The borrower just has to come, sign some forms and then go away with the car. The money in installments is given to the dealership directly. This is therefore termed indirect auto finance because the lender isn’t directly approving the finance to the borrower.

As it is clear, direct auto finance is where the borrower goes to the lender directly and applies for the loan. When the loan is approved the borrower goes to the dealership and then buys the car. Several people say that dealerships or indirect auto finance is better because the borrower gets the car and the finances under a single roof and there isn’t running around on which car to buy or which to not. However, most of the brokers and consultants state that direct financing is the best options. The reason is that the borrower never knows whether the dealer tempers or marks up the interest rate that the lender is charging or is remaining genuine with the client.

Another benefit is that pre approving the finances allows the borrower to go to the dealership as a cash buyer which makes it possible for him/her to negotiate on the loan easily and get a better price on the car.

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