The Differences Between Direct and Indirect Auto Loans

Buying a new car is an exciting experience, but it can also be stressful. One of the biggest decisions you need to make is how to finance your new vehicle. Auto loans are the most common way to pay for a new car, and there are two main types of auto loans: direct and indirect.

What Are Direct Auto Loans?

Direct auto loans are loans that you get directly from the lender. This means that you work with the lender throughout the entire process, from the application to the repayment. Direct loans can come from a bank, credit union, or online lender. The interest rates for direct auto loans are usually lower than indirect loans because there is no middleman involved.

What Are Indirect Auto Loans?

Indirect auto loans, on the other hand, are loans that are arranged through a dealership. The dealership acts as a middleman between you and the lender, and they usually receive a commission for facilitating the loan. Indirect loans can come from banks or other financial institutions, but they are always arranged through the dealership. Because of this, the interest rates for indirect auto loans are usually higher than for direct loans.

Which Option Is Right for You?

So, which option is right for you? It ultimately depends on your personal situation. If you have a good credit score and can qualify for a low interest rate, a direct auto loan may be the best option for you. However, if you have a lower credit score or don't have a long credit history, an indirect loan through the dealership may be your best option. Ultimately, it's important to do your research and shop around for the best rates and terms before making a decision.