Direct Lending and Dealer Financing are the two loan borrowing terms that have been very popular for some years. Many of us think both are the same terms but don’t know How Direct Lending and Dealer Financing Similar. These terms are similar in the aspect that both terms involve the money that we borrow to buy a specific item like a car or home. Direct Lending means the borrower directly deals with the lender. Whereas in Dealer Financing a dealer plays the role of mediator between the borrower and the lender. In this aspect these terms are different.
How are Direct Lending and Dealer Financing Similar?
The two common ways of fulfilling your dreams (like buying your own home or car) are Direct Lending and Dealer Finance. You can borrow money for your dreams from this financing. If you directly borrow a loan from a bank or other financial institute, then it’s called Direct Lending because the borrower directly deals with the lender. Whereas if you borrow a loan or a car from any finance institute through a dealer then it’s called Dealer Financing because the dealer plays the role of mediator between the borrower and the lender. Direct Lending and Dealer Financing are similar in these aspects;
- Similarity in Loan Process
In both terms, Direct Lending and Dealer Finance a borrower must involve who applying to borrow the money. Lenders of both terms offer the interest rate to the borrower and also verify their creditworthiness. Borrowers must agree to all the terms and conditions of the loan and have to pay the loan monthly until the loan amount is repaid.
- Similarity in Interest Rates
The other similarity between Direct Lending and Dealer Finance is the interest rate that is offered by the lender and the dealer. The interest rate depends on the history and credit amount of the borrower. Some additional interest is also offered by the Lender and dealers so that the other borrowers are attracted to them.
- Similarity in Loan Terms
The Loan terms of both terms Direct Lending and Dealer Finance are also the same because both have term ranges that may be 2 to 7 years. The borrower can also avail the longer or shorter loan terms but it depends on the lender. Besides these borrowers are also offered to pay the loan without the interest rate within a period.
Direct Lending Vs Dealer Financing
- Direct Lending and Dealer Finance are the ways of getting the loan from the lenders. Borrowers have to pay some interest rate in return.
- Direct Dealing means the borrower directly deals with the lender whereas Dealer Finance means the borrower deals with the dealer and then the dealer deals with the lender.
- In direct dealing comparison shopping is possible between the lenders. Whereas dealer finance doesn’t offer this.
- Dealer Finance has low promotional rates and if your credit score is strong then it’s best. Direct lending is best if your credit score is not strong enough.
| Direct Lending | Dealer Financing |
| Get the best rates after shopping around | More Convenient |
| Require more paperwork | Require less paperwork |
| The interest rate may be higher | Interest rate may be not higher |
| Pre-approval available | May offer incentives |
Frequently Asked Questions (FAQs)
Q: What is direct lending in finance?
A: Direct lending is a way to get a loan at some interest rate after dealing with the lender directly. No intermediary is involved in it. These are the investment banks that give loans to others on interest so that borrower fulfill their needs.
Q: Why is direct lending better?
A: Direct lending goes better because this is;
- More convenient.
- Less paperwork.
- Low interest rate.
- Offer incentives.