What is Direct and Indirect Finance?

When you apply for a car loan, one key decision you’ll need to make is whether to apply directly with traditional lenders, or to work with the dealership acting as a third party. When you choose to work with a North Wales-area dealership, it’s known as “in-house” or “indirect” financing, and your dealer will act as a middleman between you and multiple lenders. Applying for a loan at a bank, credit union, or other financial institution is referred to as “direct financing.” 

So, what are direct and indirect finance and how do they differ? At North Penn Mazda, we want you to know how car financing works so that you can choose the path that fits your needs in Lansdale. In the guide below, we’ll be taking a closer look at the advantages of direct finance and indirect finance, in addition to any possible drawbacks.

Comparing Direct vs. Indirect Finance Options

To effectively compare direct vs. indirect finance options, you need to know a bit more about them. We’ll start with a clear definition of what is direct and indirect finance is:

• Direct Financing – You apply for a loan through a lender such as a bank or a financial company. The lender responds with an offer of a personalized loan or interest rate, which provides you with a budget for what you can spend on a new vehicle.
• Indirect Financing – You deal with loan packages through a third-party lender such as your dealership. Typically, you will find out what loan options are available to you after completing your shopping process.

Advantages of Direct Finance

We know that when it comes to auto financing, one size doesn’t fit all. So, what method is the best match for your needs? First, we’ll consider the advantages of direct finance:

• Flexible loan terms.
• Freedom to customize your plan and full control over the process.
• You can apply broadly, for as many loans as you like.
• You can apply before or after you shop.

The main drawback of direct financing is that it takes more time to complete and requires more research to find the options that meet your needs.

Advantages of Indirect Finance

With indirect or “in-house” financing, more parties are involved than with direct financing. Working with a team can speed up the application process, because you can search for multiple loan opportunities at the same time and your dealer can run your credit multiple times per day.

While indirect financing tends to be faster and more convenient for Lansdale car-buyers, disadvantages include the chance that you might end up paying a bit more. 

Explore Your Auto Finance Options With North Penn Mazda 

If you’re unsure about the right option for you, our team is here to help you compare direct vs. indirect finance in detail! Stop by our finance center in Colmar to discuss the advantages of direct finance with our dedicated auto finance experts. Contact us or check out our online car-buying guides for more information.