What is an auto finance?

Auto finance occurs when someone borrows money from a lender or dealer to purchase an automobile. Common options for direct auto financing include a bank, credit union or finance company, according to the Federal Trade Commission.

A primary advantage of direct lender financing is the ability to explore lender offers before going to the dealership, as reported by the FTC. Doing so allows a buyer to shop around for the best rate. Dealership auto financing is convenient in that the buyer fills out paperwork at the time of buying the car. Dealers commonly source loan options from a variety of banks they work with. Some dealers also offer special financing promotions.