News & Resources

What are some sources of alternative auto financing?

Aug 29, 2014 Philip Burgess

What are some sources of alternative auto financing?

When consumers decide to buy a new car, they sometimes back themselves into a corner with regard to what financing options they think they have. Many people only know the basics or past strategies that were commonly used. For instance, individuals might think that when they go out to buy a new vehicle, they should stop at the bank at some point to see how much money a traditional financial institution is willing to lend them. Either that, or they should see how much credit the dealership itself will extend.

However, there are many more options than the traditional routes at this point. In large part, the Great Recession can be thanked for that. While seeking out bank loans might have been appropriate before the financial tumult, that's not the case anymore. The economic situation from 2008 to approximately 2012 left a lot of consumer credit scores in the gutter, so to speak. As such, a lot of people who may have previously been able to take out a loan with satisfactory rates might not even be approved today because of fallen scores and former layoffs.

These people, however, still need to be able to access lines of credit. This is important for those in the market for a new car - they want to improve their scores and credit histories, and to do so, many individuals opt for a job. But, much of the time, they need reliable transportation in the form of an automobile to hold a position. And what happens if they can't obtain a traditional line of credit?

Now, people can look into forms of alternative finance. There are a lot of options in consumers' wheelhouses. Credit companies and car dealerships should also be aware of these choices - the more sources of finance people have , the more likely they are to be able to make a purchase and become a loyal customer. So, what are these resources?

Dealer loans


These may be one of the most widely known options for finance other than a bank loan. Dealer loans are pretty easy to understand - they're lines of credit that the corporation selling the car is willing to extend to the buyer. However, individuals with less than optimal credit scores or people who haven't yet amassed a credit history might be at a disadvantage.

As FreeCreditScore.com noted, before shooting for this option, consumers would want to verify their scores, look up interest rates and figure out what their monthly payment would be before settling. That being said, the source noted that this type of credit tends to be approved more than traditional bank loans, but terms can be restrictive and rates high depending on credit risk.

Online lenders
Online short term loans, however, often have satisfactory rates for everyone from those with near-perfect credit scores to individuals whose finances went into a tail-spin during the recession. Moreover, as the news provider pointed out, the application and approval processes are exceedingly easy and quick.

Going online for this type of alternative credit makes the option very convenient for some consumers. They don't have to travel to a brick and mortar location - something that might be difficult if they're not yet in possession of a car - and then can be approved and receive the money from the comfort of their own homes. That being said, physical locations for short term loans do exist in many areas. These corporations tend to offer fair rates and fees, it just may take a little digging on the part of the borrower to find them.

That being said, lawmakers in some areas have begun to seemingly wage war against short term lenders, so businesses and car dealers will want to verify local regulations before advising consumers to look into these options.

Retail installment sales agreements
One growing trend that's becoming very popular across the nation is for car dealerships to offer retail installment financing options. They are technically dealer loans, but they have an alternative spin.

As the Consumer Finance Protection Bureau explained, this sales agreement isn't really a loan, per se. It's a deal brokered by the dealership between a consumer and a bank or other lender, in which the car buyer agrees to pay for and take possession of the vehicle, but he or she gives the company money in installments. This includes interest. Also, the source noted that there are a number of details that protect the consumer - for instance, he or she may be within legal rights to maintain possession of the car and stop paying if there are defects.

Keeping these sorts of transactions in-house can help dealerships attract more clients and provide them with the best financial options. This is something car corporations should educate consumers on upfront - if potential buyers think their options are limited, they might forego the purchase altogether. But, if they're aware of the resources that are are available to them, they might become loyal customers, so everyone wins.