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Direct auto financing: What it is and how to find a lender

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After determining which color, make and model you want for your future vehicle you must decide how you intend to purchase it. And if you are looking to finance a new car, you have quite a few options available.

One of these options is direct auto financing, which is when you get financing directly from a lender. While the process can vary by lender, consider the benefits before determining if direct financing is right for you.

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, is available through car dealers and loan connection services.

Direct financing is usually found outside of dealerships, which can be a downside if you prefer a streamlined car buying and financing process. Along with this, you may also have a hard time finding a lender that offers decent rates for no- and low-credit borrowers.

But dealer financing is not perfect either. Dealerships often have markups when it comes to financing — which you can avoid when you work directly with a lender.

Direct vs. indirect auto financing

While both financing options leave you satisfied and driving off with a new set of wheels, the process differs. So, depending on your circumstance, one may save you more than the other.

In the case of direct financing, you’d work with a bank, credit union or online lender on your own. If you were buying from a dealership, you’d still have to go to the dealer to pick out your vehicle and sign the paperwork.

On the other hand, indirect financing means that you will have a guide throughout the entire process. Although this ease can be attractive, the disadvantage of going through a dealer is that the dealer may mark up the interest rate. If you do go the route of dealer financing be sure to bring in a pre-approval offer from an outside lender — you may be able to negotiate down the dealer’s rates.

Another benefit to direct auto financing is the ability to shop around and not be stuck with the options presented on the car lot. You can get quotes from several lenders and choose the best deal based on the terms, rate and other factors rather than simply taking what you’re matched with.

How direct auto financing works

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

1. Prequalify with multiple lenders

Prequalifying is like shopping around for quotes from lenders. You can choose from offered rates, loan terms and monthly payments among other features. Compare the rates offered by multiple lenders to make sure you’re getting the best deal.

2. Choose a lender and apply

Once you have prequalified with multiple lenders, you can choose the lender with the most favorable terms. You will likely need to provide proof of income, a Social Security number and a bank account number for verification in order to prequalify 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 head to the dealership or shop around online. Since you already have financing lined up, you can shop as a cash buyer would.

4. Start making payments

You’ll need to begin making payments as soon as possible. Often you can make these payments online, by phone or in some cases you can still make payments by mail.

Where to find a direct lender

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

Check 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 an account with that specific bank or credit union and are on good terms you may get a decent rate even if your credit isn’t perfect.

Look online

There are many online lenders that offer direct auto financing, like myAutoLoan or Capital One. Or even a one-stop shop where you can buy and finance online, like Carvana. Oftentimes you will be able to get financed the same day that you apply, and you don’t necessarily have to have a car picked out — depending on the lender.

Captive finance companies

Captive finance companies are in-house financing options that auto manufacturers have.
You can get vehicle lease and car loan options for cars made by their parent company. For instance, GM Financial offers both options for vehicles made by General Motors.

The bottom line

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

Learn more

Written by
Bankrate
This article was generated using automation technology and thoroughly edited and fact-checked by an editor on our editorial staff.
Edited by
Auto loans editor