Alternative Auto Financing Options to Consider

Alternative auto financing describes any loan that does not come from a bank or dealership. Banks and auto manufacturers, which make loans through dealerships, still provide the vast majority of auto loans in the United States. However, there is a growing popularity for alternative lenders like independent finance companies, online lenders and revolving credit companies. These companies rarely offer the least expensive loan options. They do, however, loan funds to individuals who may otherwise be deemed not credit worthy at traditional lending institutions.

Independent Finance Companies

Independent finance companies are usually set up by wealthy individuals who are in the loan business or car business. For example, the owner of a used car dealership may set up his or her own finance company to provide financing directly to customers. The lenders then profit twice: one from assuring the sale of a vehicle and a second time from the interest rate assessed at financing.

Independent financiers can be located through a search of your local Yellow Pages or by asking your car dealer. These lenders tend to extend fewer loans than the average lender, and they look for people with high incomes, but bad credit scores. In this way, they can generally be guaranteed payment but also assess the highest interest rates possible. 

Online Lenders

Online lenders are very popular among individuals who would like to avoid any face-to-face negotiation for a car loan. Instead of actually having to approach a lender, you can handle the entire process from quote to loan origination entirely online. Unfortunately, the lack of negotiation time with the lender also means you will likely have to settle for a higher interest rate or unfavorable terms. For this reason, online loans are typically more expensive than traditional auto loans.

However, the convenience of handling the process entirely online is enough for some people to concede to higher payments. It is also important to recognize online lenders cater to less qualified candidates. They do not require as much from you during the application process. As such, those individuals with less than perfect credit may find online lenders an attractive option for gaining fast financing.

Revolving Credit Offers

Some people may have the option of achieving a revolving credit line with a limit high enough to cover the cost of purchasing a vehicle. This is the most flexible financing option available, allowing the borrower to literally change the terms of the loan on a monthly basis. You can decide how much to spend each month and how much to pay each month. Unfortunately, you will have to pay for this flexibility. Interest rates on revolving lines are typically much higher and they are, furthermore, adjustable in most cases. While it is common to get a low introductory rate for the first 6 months or a year, once the rate adjusts, you will find you are paying a high amount to roll over the balance on your loan from one month to the next. This option should only be considered if you can pay off the total balance within the low rate period.


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