What Is Direct Financing?

Direct financing involves working directly with a lender to make a purchase and obtain a loan. Buyers submit financial documents to a bank or finance company and negotiate the loan requirements and methods of payment with the lender directly versus working through a third party, according to LenderzList.

Direct financing gives buyers more control over financing terms and may enable buyers to secure more competitive pricing and rates, according to the Export-Import Bank of the United States. Buyers must meet eligibility requirements that may include a specific credit score, debt ratio and income level to finance directly with a lender. Direct loans can vary in length as well as payment schedules and terms, as they are negotiated by the buyer and lender.

The primary difference between direct and indirect financing involves the means to obtain and negotiate loans. For example, with indirect financing, buyers often work with a third party who quotes rates and terms. For instance, many car dealers offer indirect financing options and shop for the best rate for the buyer to provide options. The dealership then processes the loan terms, and the buyer signs financial documents at the dealership versus engaging in one-on-one contact with finance officers at the lending institution, according to LenderzList.