Final answer:
Purchasing a car can be done through either dealer financing or direct lending, with both having their own set of similarities and differences. Dealer financing may offer special incentives and is convenient, while direct lending allows for rate shopping and knowing your terms upfront.
Step-by-step explanation:
When it comes to purchasing a car, two common methods to pay for it include dealer financing and direct lending. Dealer financing means you're obtaining a loan through the dealership itself. The dealer typically works with various banks and financial institutions to offer a loan. On the other hand, direct lending means you receive a loan directly from a bank, credit union, or other lender before making the purchase.
Similarities
- Both involve monthly payments and interest.
- Both require a credit check and can impact your credit score.
- Both can feature various loan terms and rates depending on your credit.
Differences
- Dealer financing might provide special promotions or incentives.
- Direct lending allows you to shop around for the best rate beforehand.
- Dealer financing can be more convenient, initiating and finalizing the loan process in one place.
- With direct lending, you know your loan terms in advance and enter the dealership as a cash buyer.
Understanding the terms, such as down payment, monthly payment, loan duration, and mileage restrictions, especially in the context of leasing vs. purchasing, is essential as they impact the total cost and your financial obligations.