What is direct car financing and why you should get it?

What is direct car financing and why you should get it?

Once you have determined what color, make and model you want for your future vehicle, you need to decide how you want to buy it. And if you want to finance a new car, you have quite a few options.

One of these options is direct auto financing, where you get financing directly from a lender. While the process may vary by lender, consider the benefits before determining whether direct financing is right for you.

What is direct car financing?

Direct auto financing is a type of loan available through online lenders, banks, and credit unions. On the other hand, its counterpart, indirect financing, is available through car dealerships and loan connection services.

Direct financing usually takes place outside of dealerships, which can be a disadvantage if you prefer a streamlined car buying and financing process. In addition, it can also be difficult to find a lender that offers decent rates for borrowers with no or low credit.

But dealer financing is not perfect either. Dealers often have raises when it comes to financing – which you can avoid if you work directly with a lender.

Direct vs Indirect Car Financing

While you’re happy with either financing option and driving off with a new set of wheels, the process is different. So, depending on your circumstances, one may save you more than the other.

In the case of direct financing, you would only work with a bank, credit union or online lender. If you were to buy from a dealer, you would still need to go to the dealer to sort out your vehicle and sign the paperwork.

On the other hand, indirect financing means guiding you through the entire process. While this convenience can be attractive, the downside of going through a dealer is that the dealer can raise interest rates. If you go the dealer financing route, be sure to submit an offer from a third-party lender in advance – you may be able to lower the dealer’s rates.

Another advantage of direct car financing is the ability to shop around and not be stuck with the options presented in the parking lot. You can get quotes from different lenders and choose the best deal based on terms, rate, and other factors, rather than simply taking what you’re looking for.

How direct car financing works

The process of financing your car through a direct lender varies, but these basic steps always apply.

1. Prequalify with multiple lenders

Prequalification is like looking around for quotes from lenders. You can choose from offered rates, loan conditions and monthly payments. Compare the rates offered by multiple lenders to make sure you get the best deal.

2. Choose a lender and apply

Once you have prequalified with several lenders, you can choose the lender with the most favorable conditions. You will likely need to provide proof of income, social security number, and bank account number for verification in order to qualify for a loan.

The lender will determine the loan amount they can offer based on your income, debt, employment, and other factors.

3. Buy the car

You can then go to the dealer or look around online. Since you already have financing, you can shop as a cash buyer would.

4. Start paying

You should start paying as soon as possible. You can often make these payments online, by telephone or in some cases by post.

Where can you find a direct lender?

When you are looking for a direct lender, it is wise to start with institutions where you already have an account. If that’s not an option, check out other direct loan sources.

Contact your local bank or credit union

Many banks and credit unions offer direct auto loans, although they may have dealer requirements. If you have an account with that particular bank or credit union and have good terms, you can get decent interest even if your credit isn’t perfect.

Watch online

There are many online lenders that offer direct auto financing, such as myAutoLoan or Capital One. Or even a one-stop shop where you can buy and finance online, such as Carvana. Often you can get financing the same day and you do not necessarily have to pick out a car, depending on the lender.

Captive Finance Companies

Captive finance companies are internal financing options that automakers have.
You can get car lease and car loan options for cars made by their parent company. For example, GM Financial offers both options for General Motors vehicles.

it comes down to

Financing your car through a dealership is one of the easiest ways to obtain financing for a new vehicle, but the right financing option for you will depend on your circumstances. For example, if you already have an account with a bank or credit union, you may qualify for a lower interest rate through direct car financing.

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