Getting a Car Loan: Loan Brokers vs. Direct Lenders

Getting a car loan can be a difficult process. There are multiple things to do and multiple forms to fill out before you can have the car loan you need. When you are looking into a car loan, you are likely to run into two types of lenders. You will find loan brokers, and you will find direct lenders. Trying to figure out which is best can be difficult for those who do not know what they are looking for. Understanding the process with loan brokers and direct lenders will help you to get the car loan you need.

Loan Brokers could easily be called middlemen. Loan brokers are a company that works between you, as the consumer, and the lender. The lender gives the loan brokerage company a lump loan. They give them what many consider a "wholesale" price on the loan. The loan brokerage company then divides out that money. They are out to make money, but they receive their loans at a rate lower than consumer would receive them.

Direct lenders are the opposite. They have the money, and they are lending you that money. If you go with a direct lender, you are cutting out the middle man. The company is still trying to make a profit off of your loan, however. In fact, both the loan broker and direct lender will make a profit off of your loan, but most direct lenders are banks or credit unions that offer loans. Some companies specialize in giving their own loans, but these are few and far between (and are usually actually loan brokers instead of direct lenders).

Trying to figure out which lender is going to give you a better deal requires research. There is no simple rule that can tell you exactly which one is going to give you the rates you are looking for. Sometimes, loan brokers receive a great loan rate. They can then offer lower rates and better prices that regular lender can. Other times, direct lenders are looking for business. They can offer you a better rate and will give you the rate you need. Every situation is going to be different. The rates that you get for each depends on multiple variables including the size of the loan and your credit rating.

If you want to know which to choose, talk to both direct lenders and loan brokers. Get quotes from them as to how much your loan would be. Be sure to understand the interest rate, the length of payment and the overall cost of the loan. This can help you to determine which loan is better for you. In the end, you want the loan that is going to cost you the least overall. Sometimes, you will be able to find this from a loan broker. Sometimes, you are better off going with a direct lender. Without the proper research, you may be choosing the wrong one.