After determining which color, make and model you want for the future vehicle you must choose how you want to purchase it. And if you are seeking to finance a new car, you have quite a few options available.
One of these options is direct auto financing, that is when you get financing directly from a lender. While the process can differ by lender, think about the benefits before determining if direct financing fits your needs.
What is direct auto financing?
Direct auto financing is a type of loan that is available through online lenders, banks and credit unions. On the other hand, its counterpart, indirect financing, can be obtained through car dealers and loan connection services.
Direct financing is usually found beyond dealerships, which may be a downside if you need a streamlined car buying and financing process. In addition to this, you may also have a hard time finding a lender that provides decent rates for no- and low-credit borrowers.
But dealer financing is not perfect either. Dealerships often have markups with regards to financing — which you'll avoid whenever you work directly with a lender.
Direct vs. indirect auto financing
While both financing options make you satisfied and driving served by a new set of wheels, the procedure differs. So, based on your circumstance, one may save you more than the other.
In the situation of direct financing, you’d make use of a bank, bank or online lender on your own. If you were purchasing from a dealership, you’d still have to visit the dealer to choose your vehicle and sign the paperwork.
On the other hand, indirect financing means that you'll have a guide throughout the entire process. Although this ease could be attractive, the disadvantage of dealing with a dealer would be that the dealer may margin the eye rate. Should you choose go the route of dealer financing be sure to generate a pre-approval offer from an outside lender — you may be in a position to negotiate on the dealer’s rates.
Another benefit to direct auto financing is the capability to shop around and never be stuck with the options presented on the car dealership. You can get quotes from several lenders and choose the best offer based on the terms, rate and other factors rather than simply taking what you’re matched with.
How direct auto financing works
The procedure for getting you car financed via a direct lender varies, however these basic steps will always apply.
1. Prequalify with multiple lenders
Prequalifying is much like shopping around for quotes from lenders. You are able to choose from offered rates, loan terms and monthly obligations among other features. Compare the rates offered by multiple lenders to ensure you’re obtaining the cheapest price.
2. Choose a lender and apply
Once you have prequalified with multiple lenders, you are able to choose the lender most abundant in favorable terms. You will probably have to provide evidence of income, a Social Security number and a bank account number for verification in order to prequalify for a loan.
The lender determines the borrowed funds amount they can offer according to your income, debt, employment and other factors.
3. Buy the car
You may then go to the dealership or shop around online. Because you curently have financing arranged, you are able to shop as a cash buyer would.
4. Begin to make payments
You’ll need to begin making payments as quickly as possible. You will make these payments online, by telephone or perhaps in certain cases you can still make payments by mail.
Where to find a direct lender
When you are searching for an immediate lender, it is wise to start with institutions you have a merchant account with. If that is not an option, take a look at other causes of direct lending.
Check together with your local bank or credit union
Many banks and credit unions offer direct auto loans — though they may have dealership requirements. If you have a merchant account with this specific bank and are on good terms you may get a decent rate even when your credit isn’t perfect.
There are many online lenders that offer direct auto financing, like myAutoLoan or Capital One. Or even a one-stop shop where one can buy and finance online, like Carvana. Oftentimes you will be able to obtain financed within 24 hours the application of, and you don’t necessarily need to have a car selected — with respect to the lender.
Captive finance companies
Captive financial institutions are in-house financing options that auto manufacturers have.
You can get vehicle lease and auto loan choices for cars produced by their parent company. For example, GM Financial offers both options for vehicles produced by General Motors.
The bottom line
Financing your car through a dealership is among the easiest ways to get financing for a new vehicle, but the right financing choice for you depends on your circumstance. For example, should you curently have an account having a bank , you might qualify for a lower interest rate through direct auto financing.
- The best time to buy a car
- How to get the best car loan quote
- Auto loan rates
About this PAGE
- What's direct auto financing?
- Direct vs. indirect auto financing
- How direct auto financing works
- How to locate a direct lender
- The conclusion