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The indirect auto loan: What is it and is it a good idea? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make better financial decisions by offering financial calculators and interactive tools, publishing original and objective content. This allows you to conduct research and compare data for free and help you make sound financial decisions. Bankrate has partnerships with issuers including, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make money The products that are advertised on this site come from companies who pay us. This compensation could affect how and where products appear on this website, for example for instance, the order in which they may appear within the listing categories and other categories, unless prohibited by law for our mortgage or home equity products, as well as other home lending products. However, this compensation will affect the information we provide, or the reviews you see on this site. We do not contain the vast array of companies or financial offers that may be open to you.
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3 min read published 21st October 2022
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Editor: Rhys Subitch Edited by Auto loans editor
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Review by Mark Kantrowtziz. Reviewed by Nationally recognized student expert in financial aid
Mark Kantrowitz is an expert on student financial aid, including the FAFSA, scholarships, 529 plans as well as tax benefits for education and student loans.
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Indirect auto occurs when an lender provides financing to the car seller rather than directly to the purchaser. The seller passes the financing along to the buyer. Lastly, the buyer makes regular monthly payments to the lender the dealer connects you with in order to repay the loan. This approach to vehicle financing is not without its drawbacks and benefits, which is why it is essential to be aware of all choices before you sign off on an indirect auto loan. What is indirect auto financing? Direct auto financing is accessible via lenders within their partner network. Instead of seeking a loan and then getting preapproved prior to visiting the dealer to get the financing when you purchase the vehicle. The seller is paid a commission or other type of payment to connect you with the lender. It could be in the form of a percentage that’s added to the interest rate. If you pay the final payment and the lender will release the lien or title for the automobile to the. During the loan period, you’ll also be charged interest on the loan like you would with an . Other indirect loans Indirect loans may also refer to the process of using a marketplace or broker. Through these choices, you fill in your personal information and are matched with several lenders. In most instances, your credit score will not be affected since these online marketplaces only require the submission of a soft inquiry. In addition, you’ll be able to view potential loan deals that include estimated monthly payment, time frame for repayment and the interest rate to help you make an informed choice. Prior to deciding on a loan it is important to compare the total cost of the loans. Pros and cons of indirect financing Although indirect auto financing can help you have an easier time buying a car, there are also drawbacks to think about before you make a move. Benefits of indirect financing In certain instances, it is the most sense . Shop and purchase all in one location. It’s often more convenient to purchase from the dealership. You’ll be able to shop and get financing on the on the same day. Less legwork. While it’s beneficial to do so do so, it’s not essential. If you’d like to, you are able to do so without contacting other lenders prior to deciding on your vehicle. Bad credit options available. Specialty dealers have options for buyers with less-than-perfect credit. Pros and cons of indirect financing Prior to you go to the dealership without preapproval from an external lender be aware of the drawbacks. The higher rates. The dealership often will add a percentage to the over what is provided by lenders that match your requirements. This means that you’ll probably get the direct lender. Not having the same control. You can’t choose the lender your information is shopped around with. If you’re already working with a credit or bank union, it could be beneficial to join it. You could receive a lower rate or terms than otherwise. Unavailable for some purchase types. If you’re looking to buy through a direct lender , indirect financing will obviously not be an alternative. How to get indirect auto financing? The steps to obtaining the indirect financing for your vehicle are similar to the process to obtain a traditional loan. Before you apply make sure you have any documents handy that the dealer will need to submit to the lender’s in their network. Here’s a step-by-step breakdown of how to move forward by visiting the dealership. Explore the options and pick your car. Apply for an loan from the dealer. Be approved and select the best deal. Sign your loan documents. You can take possession of your . Alternatives to auto financing indirect If you do not want to obtain an auto loan through a dealership There are a variety of other options for financing your next car. Banks generally offer loans for vehicles, although it is a more involved process. If you have good credit, a bank could be the right choice. But if not have a poor credit score, this may not be the best option. Credit unions function similarly to banks, but members in the credit union will always be the primary goal, rather than investors. It is likely that you will need to be a member of the credit union, and membership requirements for members will differ from one to the next. But joining a credit union that offers auto loans will save you money, and also give you greater flexibility. Online lender Utilizing one of the online lender is another possibility to finance a car, without the need of a dealership. The majority of online lenders are focused on providing low rates and reasonable loan terms, rather than the huge commissions that you would find at a traditional dealership. Indirect auto financing is a convenient option to finance your next car. But, it’s essential to ensure you do your research prior to visiting the dealer since you may find an alternative that is better. It is also possible that the dealer is willing to match or beat an external loan price to win your business. Find out more
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Written by
This article was written by using automated technology. It was then thoroughly verified and edited by an editor on our editorial team.
The edit was done by Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate from late 2021. They are passionate about helping readers gain the confidence to control their finances by providing clear, well-researched information that dissects complex topics into manageable bites.
Auto loans editor
Reviewed by Mark Kantrowtziz Reviewed by Nationally known student financial aid expert
Mark Kantrowitz is an expert on student financial aid The FAFSA and 529 plans, scholarships educational tax benefits, student loans.
Nationally acknowledged expert in student financial aid
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