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The Difference Between Direct and Indirect Loans

If you’re thinking about taking out an auto loan, it is important to consider these two ways of borrowing.

Borrowing money for a car can quickly turn into a complicated financing web if you’re unfamiliar with how to get started. The procedure of obtaining an auto loan seems lengthy, but thoroughly understanding the initial details of it could make your life a lot easier. Not to mention, it could save you money in the process. Before you decide to take out an auto loan, it’s important to understand that our financial lending system works in two ways: indirectly and directly.

Before anything is confirmed, the terms of a loan are discussed and agreed to by each party. If you’re thinking about taking out an auto loan, it is important to consider these two ways of borrowing.

1) Direct

This type of loan is one that comes directly from a financial institution (i.e. banks, credit unions, etc.). Direct financing eliminates the middleman and can prove to have better interest rates and payment options if you know where to shop. As well, it ensures that the customer is not subject to any pressures and can make decisions with their self-interest first and foremost. On the contrary, if you decide to take out a direct loan, there is no area for negotiation once you’ve agreed to the terms and conditions of it.

2) Indirect

An indirect loan, also known as dealer financing, is a loan that you can get from an actual dealership – the dealership secures a loan for you and then sells it to a financial institution. Indirect lending requires trust between the dealer and the customer, so creditworthiness is important. Due to the fact that the dealership is the middleman of the auto loan purchase, your payments and interest rate may be higher. However, this approach to auto lending is extremely convenient as it allows terms to be altered without having to obtain the agreement of institutions.

So what method of lending is best for you?

Regardless of the type of auto loan that you opt for, make sure that you’re securing your financing first and foremost. Understanding the terms and conditions for both types of loans is extremely important, and going into the situation with organized financing and a clear idea of what you want and need will guarantee that you get the loan best fit for you.

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