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The indirect auto loan: What is it and is it an excellent idea? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make better financial decisions by providing you with interactive tools and financial calculators that provide objective and original content, by enabling users to conduct research and compare information at no cost to help you make informed financial decisions. Bankrate has agreements with issuers, including but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The offers that appear on this site come from companies that compensate us. This compensation can affect the way and where products are displayed on the site, such as, for example, the order in which they be listed within the categories of listing in the event that they are not permitted by law for our mortgage, home equity and other products for home loans. This compensation, however, does not influence the content we publish or the reviews that you see on this site. We do not contain the entire universe of businesses or financial deals that may be available to you.
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3 minutes read. Published 21st October 2022
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Indirect auto is when a lender provides financing to the seller of the vehicle instead of directly to the buyer. The seller then passes the financing along to the buyer. Then, the buyer makes regular monthly payments to the lender that the dealer has a relationship with to pay off the loan. This approach to vehicle financing has its advantages and disadvantages, which is why it is essential to be aware of all options prior to signing any indirect vehicle loan. What is indirect auto financing? Indirect auto financing is available through lenders who are part of their partner network. Instead of seeking an loan and getting preapproved before going to the dealer to get the financing when you purchase the car. In turn, the seller is paid a commission or other type of payment for connecting you to the lender. This can be in terms of a percent that’s added to your interest rate. If you pay the final payment then the lender will transfer the title or lien on the vehicle to you. In the loan duration, you’ll also pay fees on the loan like you would with the loan . Other direct loans Indirect loans can also refer in the way of making use of a marketplace or broker. Through these choices, you fill in your personal information and you are then matched with one or more lenders. In most instances your credit score will not be affected as these marketplaces require an inquiry that is soft. In addition, you’ll be able to see potential loan offers that include the estimated monthly payments, the time frame for repayment and the interest rate to help you make an informed decision. Before you decide on one you should also compare the cost of all loans. There are pros and cons to indirect financing Although indirect auto financing could help you get a more seamless car-buying experience but there are also disadvantages to think about before you make a move. Benefits of indirect financing In certain situations, it makes better sense . Buy and shop all in one location. It’s generally more convenient to buy at the dealership. You’ll be able to browse and obtain financing the next day. Less legwork. Although it’s still beneficial to do so , it is not strictly necessary. If you want to, you are able to do so without having to apply with different lenders before choosing your car. Bad credit options available. Specialty dealers have options for those with less than perfect credit. The disadvantages of indirect financing before you visit the dealership without the approval of an external lender take note of these disadvantages. More expensive rates. The dealership typically includes a portion on top of the rates offered by lenders who meet your needs. This means you’ll most likely be able to get a direct lender. There isn’t so much of a control. It isn’t possible to select which lender you share your information around with. If you’re already working with a bank or credit union, it could be beneficial to join it. You could get a better rates or conditions than otherwise. Unavailable for some purchase types. If you’re looking to buy from a , indirect financing is not likely to be an alternative. How to get indirect auto financing The procedures for getting indirect auto financing are similar to the procedure to obtain a traditional loan. Before you apply make sure you have all the documents available that the dealer will need to submit to the lender’s in their network. Here’s a step-by-step breakdown of the process to follow by visiting the dealership. Explore the options and pick the car you want to drive. Apply for an loan from the dealer. Acceptance is granted and you can choose the best offer. Sign your loan documents. You can take possession of your . Alternatives to indirect auto financing If you do not want to get an auto loan via a dealer, there are several alternative options to finance your new car. Banks generally provide loans for vehicles, however it can be a more involved process. If you have good credit, a bank could be the best option. But if not have a poor credit score, this may not be the best choice. Credit unions operate similarly to banks, but members of the credit union are the main focus rather than investors. You’ll likely have to join the credit union and the membership requirements will vary from one to the next. But joining a credit union that provides auto loans can help you save money, and also give you greater flexibility. Online lender Using the internet as a lender is another possibility for financing a car without the need of a dealership. Many online lenders focus on offering low rates and reasonable loan terms, rather than the high commissions you could encounter at a traditional dealer. The bottom line Indirect auto financing can be a practical solution to help you purchase your next car. But, it’s essential to ensure you do your research prior to visiting the dealer since you may find a better deal elsewhere. There is a chance that the dealership is willing to compete with or beat an outside loan offer to earn your business. Find out more
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Written by
This article was written with the help of automation technology, and then edited and fact-checked by an editor on our editorial staff.
Edited by Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate since the end of 2021. They are dedicated to helping readers gain confidence to take control of their finances by providing precise, well-researched and clear information that breaks down otherwise complex topics into manageable bites.
Auto loans editor
Review by Mark Kantrowtziz. Reviewed by Nationally recognized expert in student financial aid
Mark Kantrowitz is an expert on student financial aid, the FAFSA, scholarships, 529 plans educational tax benefits, student loans.
Nationally recognized student financial aid expert
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