When purchasing a car, selecting the right type of financing is just as important as choosing the vehicle itself.

Whether you're looking for the lowest interest rates, the most convenient process, or the best long-term deal, understanding the differences between direct lending vs. indirect lending can help you make the right decision.

What is direct auto lending?

Direct auto lending means borrowing money directly from a bank, credit union, or online lender. If you’re approved, you’ll receive a finance offer you can use to buy a vehicle from a dealer or private seller.

Key benefits of direct auto lending

• More control over the process – You can shop around and compare multiple lenders to secure the best interest rates and terms
• Lower interest rates – Direct Lending can have better rates, especially for those with higher credit scores.
• Pre-approval advantage – Because you’re a "cash buyer,” you have more bargaining power

Potential drawbacks

• Longer application process – Shopping around for different lenders and securing preapproval can take longer than obtaining financing at the dealership

What is indirect auto lending?

Indirect lending happens when you finance your car directly through a dealership. The dealer collects your credit and financial information and submits your application to multiple lenders. They then present you with financing options and finalize whichever option you choose.

Key benefits of indirect auto lending

• Convenience – You can complete the car purchase and financing process at the dealership in one visit
• Access to multiple lenders – Dealers often work with several banks, credit unions, and finance companies — increasing the chances of approval if you have bad credit
• Promotional offers – Some dealerships offer manufacturer-backed incentives, such as 0% financing or cash rebates, which may not be available through direct lending

Potential drawbacks

• Higher interest rates – Indirect Financing may have higher rates for those unable to qualify for direct financing
• Third-party relationship – Because the dealership negotiates with lenders on your behalf, you may not see all the potential finance options.
• Potential for hard inquiries – The dealership submits your application to multiple lenders, which could affect your credit score. However, there’s a 14-day rate shopping window that will minimize the impact.

Which option is right for you?

By comparing multiple offers, direct lending can help you secure the lowest possible interest rate. If you prefer to get pre-approved, direct lending ensures you know how much you can borrow so you can confidently negotiate at the dealership.

Indirect lending may be the right choice if you prioritize a faster and more convenient financing process. The process is significantly streamlined by handling the car purchase and financing approval in one place. Indirect lending can also provide access to dealership-exclusive financing incentives or special promotions, such as lower interest rates or cashback offers.

Working with a dealership can also be beneficial if you have a lower credit score. Dealerships often have relationships with multiple lenders and can help you access financing options that may not be available through direct lending.

Making an informed choice

Both direct and indirect auto lending have their benefits, and the right option depends on your financial situation, credit score, and personal preferences. If indirect lending sounds appealing to you, Credit Acceptance helps connect car buyers with dealerships nationwide specializing in financing for all credit situations. And you can get pre-qualified online today!