Auto financing,  also known as car financing, auto finance, or car finance, involves acquiring a vehicle through various payment arrangements. However, it does not include a single full-cash payment.

Auto financing ensures that the dealer or manufacturer is paid the right amount even if the buyer does not have enough money. Provisions are provided by banks and other types of financial institutions. In this case, the buyer and seller are in a no-lose situation.

The Federal Trade Commission (FTC) is a consumer protection agency in America. It states that businesses and consumers have two primary options for auto financing. These include direct lending and dealership financing.

Direct lending
Direct lending involves a buyer directly taking a loan from a bank, credit union, or finance company. The buyer then assures the lender that he/she will repay the loan in an agreed duration of time. Repayment in auto financing includes paying back the capital amount, interest, and a finance charge.

This loan taken by the buyer is then used to purchase a car after signing a contract. It is advised by the FTC to look around and inquire about multiple lenders and about their terms and conditions. This must be done before selecting a particular automobile for purchase.

An advantage of direct lending is that the buyer is aware of the credit terms right from the start. As they receive auto financing before buying a vehicle, they will be well aware of their budget among other restrictions.

Dealership financing
Dealership financing involves auto financing through a dealer. The money used for purchase still comes from a bank or any other financial institution. However, there is no direct transaction between the bank and the buyer. Dealership financing implies a contract between the buyer and the seller. It involves a dealer selling a vehicle with the assurance of payment from the buyer. This agreement between both parties means the buyer has to pay the total worth of the car in a set period.

While some dealers retain the original contract, most of them sell it to an assignee. An assignee is someone that receives the right of a particular property including credit unions, banks, or finance companies. It is their responsibility to service the account and collect repayment.

Dealership financing offers three significant advantages. They include the following:

• Convenience: Dealers have a wide variety of cars along with auto financing options at a single location. Hence, it is not required to make multiple visits to a bank and a dealership to make a purchase.
• Choice: Dealers usually maintain favorable relations with various banks and finance companies. This allows a buyer to choose from numerous auto financing options.
• Special programs: Dealers often offer special buying programs to their customers. Manufacturers sponsor these programs and offer many benefits. One of those can be a low-rate of interest. However, these programs only apply to certain vehicles. Furthermore, they have special requirements like strong credit ratings, large deposits, or shorter contract duration.