Difference Between Direct Auto Loan & Indirect Auto Finance
Summary
Two common options for financing a car purchase include direct and indirect auto loans. Explore the definitions and differences today.
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If you're using a loan to buy a car, the type of car financing you select is an important choice. Auto loans and the car buying process have changed dramatically in recent years. Plus, average car payments are at record highs in 20221. Now more than ever, it's essential to understand your car financing options.
Two common options include direct auto loans and indirect auto loans. To help you determine which is best for you, we’ve put together this guide to indirect loans vs. direct loans:
What is a direct auto loan?
A direct auto loan is when you apply for a car loan directly with a consumer lender such as OneMain, a bank or a credit union. 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 let you check to see if you’re prequalified and/or apply for online car loans, which can save you time and effort.
While you could search for a lender after you’ve found the car you’d like to buy, there are several benefits to talking to a lender about a direct auto loan before you car shop. First, you’ll know the amount likely available to you when you start looking. This can help narrow down your choices. Second, you may have an idea about the monthly payment you can afford so you won't be getting in over your head. Lastly, you have more flexibility and time to search for car loan terms that make sense for you.
What is an indirect auto loan?
An indirect auto loan is financing you could get through the car dealership. Once you find a car at the dealership, you’ll work with the sales associate for the purchase details. You can take care of car shopping and apply for financing all in one visit, which busy consumers appreciate. Many dealers then sell the retail installment contract to a bank or finance company, who you pay exactly like a loan.
How do direct and indirect auto loans differ?
Here are some of the main points of how these two auto financing options differ:
| Direct auto loan | Indirect auto loan | |
| When you get the loan | Before or after you've found the car you want. | After you've found the car you want. |
| Who you get the loan from | Directly from a bank, credit union or other lending company. | Through a car dealership. |
| Potential credit inquiries | You choose how many lenders you apply for a loan with and how many credit checks you receive. | You may have multiple credit checks on your credit report. |
| Personal time spent | It can take time to find the right lender. | It can be efficient since all loans are searched at once, from one place. |
| Level of control | You're in full control. | You share control with the car dealer. |
You're in the driver's seat
Ultimately, you should select the car financing options that make sense for you and your financial situation. While some shoppers prefer the convenience of an indirect auto loan as a one-stop-shop, others will appreciate the flexibility of direct auto loans.
It's important to understand the difference between direct vs. indirect auto lending and know your options. No matter what road you take when using a loan to buy a car, making an educated decision is a smart way to go.
Our car purchase loans can enable you to walk into the dealership with confidence — and walk out with your next car.
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This article is for general education and informational purposes, without any express or implied warranty of any kind, including warranties of accuracy, completeness, or fitness for any purpose and is not intended to be and does not constitute financial, legal, tax, or any other advice. Parties (other than sponsored partners of OneMain Financial (OMF)) referenced in the article are not sponsors of, do not endorse, and are not otherwise affiliated with OMF.
