Choosing Between Direct Lending and Dealership Financing For Your Auto Loan

Direct vs Dealership Lending – which should you choose? The U.S. Federal Trade Commission indicates that typical car purchase prices have risen to about $31,000 for new models. This is also over $17,000 for used models. With a majority of American consumers unable to pay cash for a vehicle purchase, most buyers must take out an auto loan to cover at least part of the purchase price. For consumers utilizing credit, there are two financing options to choose from: direct lending and dealership financing.

What is Direct Lending

There’s much to consider when wondering about Direct vs Dealership Lending. In a direct lending loan scenario, a buyer receives a loan directly from a financial institution, like a bank, local credit union or automobile finance company. Direct lending offers the ability to shop around for the best interest rates and get preapproved for an amount before even begin to search for vehicles at the dealership. This can be useful because it may help solidify your budget before you begin test-driving vehicles, ensuring you won’t fall in love with a car outside your price range.

What is Dealership Financing

Dealership financing is a second option for consumers to consider. In this financing arrangement, the buyer receives a loan directly from the dealer selling the vehicle. Like a direct loan, you’ll have to pay the principal and interest, but you’ll also have to pay a dealership finance fee. This sort of financing is handy for purchasers because they can complete all documentation in the dealer’s finance office. Occasionally, dealerships also offer special financing programs, like manufacturer incentives, that aren’t available to buyers through direct lending.

It’s easy to get caught up in the excitement of a new car. Smart shoppers who compare loan terms as well as vehicle prices will certainly save money.

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