When you're in the market for a new or used car, it's easy to focus on the vehicle itself — make, model, and mileage. But how you choose to finance that car can be just as important. One option which buyers encounter at dealerships has them asking, “What is indirect auto financing?”

How indirect financing works

Indirect auto financing is arranged through a dealership rather than directly with a bank or credit union. In this instance, the dealership acts as a go-between. When you apply for financing on the lot, the dealer submits your credit application to one or more lenders. If you're approved, the dealer presents you with available financing offers.

Once you select an offer and agree to the terms, the dealership typically sells the contract to a lender or financing company. That financial institution then becomes the entity that services your auto financing and collects your monthly payments.

This process allows buyers to shop for a vehicle and apply for financing all in one place, which is especially appealing to those who want a streamlined experience.

Indirect vs. direct: The benefits of each

With direct auto financing, borrowers apply through a bank or credit union before they ever set foot in a dealership. Direct financing typically offers lower interest rates because these institutions work with those with higher credit scores, meaning there’s less risk of default.

Indirect financing, by contrast, is usually arranged through the dealership at the time of purchase. It’s often a better fit for buyers with challenged or limited credit, since many dealers partner with lenders that specialize in a broader range of credit profiles — including those who’ve been turned down elsewhere.

While interest rates may be higher, indirect financing offers a path to vehicle ownership for many buyers who might not qualify through traditional lending channels. The convenience and flexibility it offers is ideal for those working to build or rebuild their credit.

Your ability to negotiate

One of the most debated aspects of indirect auto financing is how much discretion dealers have in setting interest rates. However, you should know that these interest rates are negotiable. If a dealership gives you a rate you don’t like, it's okay to make a counteroffer. They may not accept, but don’t assume it is not open for discussion.

Open to indirect auto financing?

If you need a vehicle now and can’t secure direct auto financing, Credit Acceptance may be able to assist you. We provide indirect auto financing to over 15,000 dealers nationwide. To estimate a monthly payment you may qualify for — and receive a shortlist of local dealerships — you can begin the pre-qualification process today.