Direct and Indirect Loans in Canada

Couple signing up for an indirect loan

Borrowing funds for a car can rapidly become a convoluted financing web if you’re not aware where to begin. Obtaining an auto loan may seem lengthy, but learning the initial details of it could make your life a lot easier. Further, it could save you money in the process. Before you decide to take out an auto loan, it’s crucial to understand that our financial lending system works in two ways: indirectly and directly.

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

What are the differences between a direct loan and an indirect loan?

  • Direct

    This kind of loan comes directly from a financial establishment (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.

  • Indirect

    An indirect loan is also called dealer financing. It 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 way of lending is best for you?

Despite the type of auto loan that you select, make sure that you’re securing your financing first and foremost. Mulling over the terms and conditions for both types of loans is extremely critical, and opting for organized financing and a clear idea of what you want and need will certain that you get the loan best fit for you.

If you are looking to build your credit, you can use an indirect loan to get a new car. Visit Canada Auto Experts or call 1-855-550-5565 to talk to a finance specialist today!

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