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The Difference Between a Direct Auto Loan and Indirect Auto Financing

The Difference Between a Direct Auto Loan and Indirect Auto Financing

By Matthew Diehl • September 23, 2019

When shopping for a new car, you could be faced with a lot of decisions. Make. Model. Price. Number of cup holders. But if you need to borrow money, the type of auto financing you get could be the most important decision of all.

Two common options include direct auto loans and indirect auto financing. To see which could be best for you, here are the definitions and differences:

Direct auto loan

A direct auto loan is when you apply for a car loan at a bank, credit union or other lending company. Like most installment loans, you may need to provide documents like proof of identity, proof of residence and proof of income. Direct auto loans are typically processed in a branch, but some lenders do let you check to see if you’re prequalified and/or apply online, which can save you time and effort.

While finding a lender to loan from could be done after you find a car, there are several benefits to getting a direct auto loan before you shop. First, you’ll know the amount you’re approved for when you start looking. This can help narrow down your choices. Second, you know you can afford the monthly payment, so you won’t be getting in over your head. And last – you’re in control.

Think about it. Whether you shop online or at a car lot, you’ll be in the driver’s seat of the deal. All you have to do is introduce yourself and say, “This is what I’m preapproved for. What can you do for me?”

Indirect car financing

An indirect auto loan is financing you get through the dealer, their lending partners or another financial institution. The process typically starts after you’ve found a car at a dealership. Your salesperson will take you back to their desk and offer you a price. Once you come to an agreement on a price, they help you fill out your application and make sure you have all the required personal and financial documents. This is when they can gain the upper hand.

To get a car loan, you must give the dealership permission to run your credit. Depending on your score, they may run your credit with several different lenders to get you approved or find the best rate. Once your results are ready, the salesperson will present them to you. Even if you don’t like the terms or interest rate of the available auto financing options, those may be your only choices if you want to buy that car from that dealership.

How they’re different

Here are some of the main points of how these two auto financing options differ:

  Direct Auto Loan Indirect Auto Financing
When you can get the loan Before or after you’ve found the car you want. After you’ve found the car you want.
Where you can get the loan Directly from a bank, credit union or other lending company. Through a dealer, their lending partners or another financial institution.
Potential credit inquiries You choose how many loans you apply for. The dealer or lender can run your credit several times.
Personal time spent It could take a lot of time to find the best lender. It might be fast since all loans are searched at once.
Level of control You’re in full control. You share control with the salesperson or dealer.

Do what makes sense for you

Getting an auto loan can be a lot like choosing the car you want. One person may like the ease of going through a dealership and handling everything at once. The next person might prefer a different route, like a personal loan for auto financing, that puts you in control from the beginning. No matter what road you take, making an educated decision is a smart way to go.


The information in this article is provided for general education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. It is not intended to be and does not constitute financial, legal or any other advice specific to you the user or anyone else. The companies and individuals (other than OneMain Financial’s sponsored partners) referred to in this message are not sponsors of, do not endorse, and are not otherwise affiliated with OneMain Financial.