Indirect vs Direct Auto Loans

Both indirect and direct auto loans have advantages and disadvantages. Here are the basics of indirect and direct auto loans and how they work.

Direct Auto Loans

A direct auto loan is one that you get directly from a financial institution. For example, you are going to go to the bank or a credit union and get a loan from them without working through anyone else. They will provide you with a voucher or a blank check that you can use to purchase the car of your choice.

Indirect Auto Loan

An indirect auto loan is one that you get through the dealer from another financial institution. This is basically like getting dealer financing. You are going to go to the dealer and choose your car first. They will then work with a number of financial institutions in order to help you find a loan that will work for your personal budget.

Securing Financing First

If you are a savvy shopper, you will want to make sure that you secure financing first. This means that you need to get your loan figure out before you ever set foot on an auto lot. If you allow the dealer to arrange for financing for you, they are going to have too much room to take advantage of you. They will be able to manipulate the price of the car that you are buying and the terms of the loan that you are getting. This means that you may be giving them too much money for the financing charges. If you are trading in your car at the same time, this gives them another way that they can add profit to the transaction.

When you arrange the financing first, this is also going to give you the option of shopping around. You will be able to work with a number of different lenders in order to get the best deal that you can find. When you utilize indirect lending, you are not going to get this option. You are basically going to have to work with the lenders that are available through the dealer.


If you value convenience, you may prefer indirect auto lending. With this approach, you will not have to spend a lot of time going around to different lenders and working with them individually. Instead, you can simply walk into the auto dealer and they will secure a loan for you after you pick out the car that you want to buy. When you do this, you will not have to put in a lot of effort and the dealer will handle the entire process for you. Just be aware that you may have to pay a higher price for this service.

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