The Difference Between Direct and Indirect Auto Financing

close up hand signing auto loan deal

While car buyers typically focus on the type of vehicle they want to buy and how much they can afford, auto financing plays a key role in one’s ability to buy a car. If you don’t have cash available to purchase the vehicle outright, you can either apply for a direct car loan or indirect auto financing.

What is a direct car loan?

A direct car loan is financing for which you can directly apply with a consumer lender, bank, or credit union. When applying for a direct car loan, you will work with a loan officer who gather certain information and documentation and process the loan. With a car loan, you borrow money from a bank, credit union, or other financial institution, signing a contract promising to repay the loan amount in fixed monthly car payments over a set period.

If you’re in the beginning stages of your car buying journey, it may be wise to shop around for a direct car loan before you begin your car search, so you can determine what makes the most financial sense for you. This way, you’ll know the loan amount available for you to buy a car, which can help you determine what you can afford and narrow down your car options.

What is indirect auto financing?

Indirect auto financing is financing you can get through a dealership when trying to buy a car. The dealer will collect your information and, generally, work with multiple auto lenders and auto finance companies like Credit Acceptance to arrange financing on the customer’s behalf. With indirect auto financing, the dealer enters a contract with you in which you agree to pay for the car over time. The dealer typically sells or assigns your contract to a bank, credit union, or other finance company that will service your account and collect your payments. An advantage of dealer-arranged financing is that the dealer may have many credit options to serve their customers and they will work on your behalf to obtain different offers.

Credit Acceptance works with more than 12,000 enrolled dealers across the nation to help credit-challenged car buyers get approved for auto financing. Learn more about how our program works.

Are you shopping for a car and having trouble getting approved for auto financing due to having bad or no credit? Simply see if you pre-qualify on our website and we’ll connect you with a car dealership in your area that can help you get started.

Start your auto financing pre-qualification today!