There are different places where an applicant goes to when applying for subprime auto finance – banks, credit unions, car dealerships, used car lots etc. Based on the places where the applicant goes, these loans are divided into direct and indirect.
Indirect subprime auto finance providers are those which do not provide the finances to the applicants. These places just act as a medium between the applicant and the loan provider. These places include buy-here pay-here car lots and other car dealerships. The logic of these loan providers is that the applicant gets the finances and the car from the same place and he/she just has to pay the monthly installment to the dealer. When the applicant submits his/her application to the dealership, they transfer that to the lender. The lender approves the subprime auto finance and the finances are paid to the dealer.
When the applicant goes directly to banks or lending institutions for the subprime auto finance, it is called as direct financing. In these situations, the applicant applies to the bank or lender for the finances. When the loan is approved, the finances are given to the applicant and then he/she could use them to buy the car from the dealer.
Many people prefer dealerships as they provide the loan as well as the car. However, many consultants state that it is best to go for direct loan as the applicant is sure in this case that he/she is paying the interest rate that is being charged by the lender. There have been many cases where the dealer has hiked the loan rate so that he/she could earn more money from the deal.
Tags: Subprime Auto Finance