Few buyers can afford to pay cash for a car these days, and given the typical price of a vehicle, it’s easy to see why. The average cost of brand-new vehicles breached $48,000 in 2023, and used cars aren’t far behind at an average of $27,000.

Buyers have two financing options to help them afford a car: direct lending and dealer financing. How are direct lending and dealer financing similar, and what makes them different? Learn more in this guide to financial services for car dealers.

Direct lending is a type of financing that provides funds directly from financial institutions, such as a bank, credit union, or online lender. Buyers apply for funding with the institution of their choice. Once approved, they can shop around at dealerships and use the funding anywhere they’d like.



Dealer financing is just what it sounds like: funding obtained directly through the car dealer. When a buyer applies for financing, the dealership compares different lenders and chooses the best loan for the buyer based on their credit situation.

So, how are direct lending and dealer financing similar? For starters, both provide funding to purchase a vehicle. Additionally, with both options, buyers can only use the money to buy a car and nothing else. They can’t use their car loan to purchase home renovations, for example.

Another similarity is that both require credit checks. This can be disheartening for buyers with challenged credit. Obtaining a bank or credit union loan is often difficult for buyers with poor credit scores. And if they do manage to get funding, the loan terms may not be favorable.

Although dealer financing also requires a credit check, it’s often more lenient to credit-challenged buyers. Dealers usually have partnerships with lenders specializing in offering financing to those with bad credit, making it easier to get a loan. The downside is that such loans may charge higher interest than loans from banks and credit unions.

A third similarity is that both involve loan terms that spell out how long the buyer has to repay the funding. Loan terms typically range from 24 to 84 months, although they can be longer. With both types of funding, buyers must make regular payments to avoid hurting their credit or having the car repossessed.

Lastly, both types of loans may allow buyers to refinance. Buyers can refinance to reduce their overall interest, lower their monthly payments, or both.

Direct lending appeals to buyers who crave flexibility. With a bank or credit union loan, buyers can shop for the perfect car at different dealers to get the best price. However, direct lending may not be an option for those with less-than-perfect credit.

Another perk of direct lending is the buyer’s ability to prequalify for a loan. Knowing the loan amount and interest rate in advance makes shopping for a car they can afford easier.

Dealer financing’s biggest draw is the convenience. Instead of shopping around at different lenders, buyers can get financing from a dealer on the spot, often the same day they want to buy a car. Plus, dealers’ lenders may be more willing to work with buyers worried about their bad credit scores.

If buyers seek the best possible loan terms, they might prefer direct lending. However, shopping around for a loan can be time-consuming and stressful.



Buyers who want an easy lending process may want to choose dealer financing. It’s highly convenient and more accessible to people with challenged credit.

Now that we’ve answered the question, “How are direct lending and dealer financing similar?” we invite you to check out our car dealer financing options here at Edge Financial Services. We specialize in helping credit-challenged customers get funding to buy the car of their dreams, which means higher sales for you.

Learn more about our Auto Dealer Partner Program at (866) 890-2415.