How Is Dealer Financing Different From Direct?

Are you planning to finance a used car for sale near you? If so, you may be wondering about your options when it comes to financing a car. The fact is that there are two different options for auto financing: dealer financing and direct lending. Both are great options; however, the most beneficial one for you will depend on a few different factors, including your financial status. If you are interested in learning about the difference between these two types of lending, we at Terre Haute Auto have compiled a list below to help inform you before you finance a used car near Terre Haute or anywhere else.

Dealer Financing:

Dealer financing is lending that is through a dealership, in which you sign a contract with a car dealer to buy a new or used car for sale near you. Overall, it is a very streamlined process that can be accomplished on-site at a dealership.

Pros:

1. Captive Lending

Among dealer financing, there are a few different lending options, including captive financing. Captive financing is a lending service that is sponsored by a specific manufacturer of new or used cars near you. GM Financial and Toyota Financial Services are great examples of captive financing, in which a manufacturer offers special benefits and incentives for financing with them, such as 0% APRs and trade-in programs.

2. More Bad Credit Options

Aside from captive lending, dealer financing offers a lot of options if you are in search of a used car for sale near you with bad credit. With this being said, dealerships, such as Terre Haute Auto’s buy here pay here near Terre Haute, specifically cater to buyers with little to no credit. These buy here pay here dealerships bypass credit scores, using other factors to determine loan eligibility, like income-to-debt ratio.

Cons:

1. Higher Prices

With dealer financing, you will finance a car for sale near Terre Haute or anywhere else at the dealership’s set value. With direct lending, on the other hand, a financial institution provides pre-approval for a specific market value on a vehicle, which usually translates to lower prices than what’s offered by dealerships.

2. Less Negotiation Power

Because you must buy a vehicle at a price the dealership sets, you will usually have less negotiating power when financing through a dealership. Luckily, dealership benefits tend to make up for the higher prices and lower negotiating power.

Direct Lending:

Direct lending is another financial option to consider while searching for a used car near Terre Haute or wherever you may be. With direct lending, you go through a financial institution to pay the financed amount plus a finance charge.

Pros:

1. Low Interest Rates

Whether you are searching for a used car near Terre Haute or anywhere else, direct lending will typically have lower interest rates than dealer financing, especially if you have good credit. Most of the time, credit unions offer the lowest interest rates due to the fact that they are member-owned, passing savings onto their clients.

2. Pre-Approval

One of the most significant benefits of direct lending is pre-approval. Getting pre-approved for an auto loan allows you to understand your loan eligibility along with loan terms before finding a vehicle. Hence, it makes the financial process much less stressful while allowing you to compare pre-approval prices with dealership prices.

Cons:

1. Little Options For Bad Credit

A downfall of direct lending is that they typically only cater to buyers with good credit. They also provide better benefits depending on your credit. You should still note, however, that there are still direct lending options online for buyers with poor credit.2. Long ProcessBecause you have to get pre-approved for financing with direct lending, the process is usually longer than if you were to finance through a dealership. Therefore, you should go through finance through our car lot near Terre Haute or anywhere else if you want a quick process.