What is a car loan and why do we have such stratagems to help us?
The nuts and bolts of a car loan is quite simple actually. You plan on buying a car but do not have enough cash in hand to make such an investment, so you seek out a car loan which gives you access to the money you require to make the purchase, contingent on the agreement that you settle the accounts with the bank or a financial institution that lends the money. There are two primary types of car loans. Direct Loan and Indirect Loan.
Direct Loan
Direct loan is when the buyer ‘directly’ meets with a bank (or a credit union) to apply for a loan. The bank runs a background verification of things like:
- Credit scores
- Annual income
- Assets
- Liabilities, if any.
Before accrediting the loan in question. This type of loan almost always offer lower interest rates because they prefer clients with good credits to their name and have less linkmen.
Indirect Loan
Indirect Loan is when the buyer and a car dealership sign a retail installment sales contract and agree on the number of amount of payments; the contract is then sent by the lender to the bank or financial institution they are in collaboration with. Indirect dealers have captive auto lenders who maneuver the sale of a particular brand(s). The buyer then pays off his loan amount to the bank or financial aid affiliated much like a direct loan.
So, which one is a better option? Direct or an Indirect car loan? The answer to that query is on the fence, because both have their own sets of guidance principles. Now, buyers with a high credit score have two options for them, direct or an indirect loan as it would be equally beneficial to them because of the status of their credits. Whereas, the buyers who may have a less acceptable credit score and probably have a few liabilities, can proceed with indirect loans; buyers will find this to be of extra assistance and easy on their wallets. As direct lenders such as banks or credit unions, tend to prefer clients with an impressive credit score rating, it might be a less viable option to pursue for a car loan for buyers with a low credit score.
Altogether, a loan calls one to be conscientious and to be well informed of the terms to which you agree to.
