Captive auto lenders are financial subsidiaries set up with the sole purpose of offering auto loans to buyers of a specific car company or a particular dealership. In fact, 28% of auto loans in the country are provided by captive lenders. If you’re looking to buy a car in the US, you can avail this kind of loan from the dealership on the spot itself. Some of the well-known captive auto finance lenders are BMW Financial Services, Ford Credit, Mercedes-Benz Financial Services, Honda Financial Services, GM Financial, etc.

So, how does captive auto lending work?

1. Captive auto finance industry in the country
Captive lenders are becoming a force to be reckoned with in the auto lending business in the finance world. According to studies, 30% of auto loans in the 2 ^nd quarter of 2018 were offered by captive lenders, a 5% increase from 2017. On the other hand, banks made up only 30% of auto loans, down 4% from 2017, while credit union loans also rose from 20% to 23%. What’s more, currently captive auto lenders possess the biggest share of new financing with 57%, as opposed to banks with only 25% of new lending share in the 2 ^nd quarter of 2018. Clearly, more and more people are seeking auto financing through captive lenders.

2. Will captive lenders give you a better deal?
For most people, the instant reaction is that captive lenders are fundamentally not good. However, one can get good deals for auto finances through captive lenders. There are many times when borrowers can combine dealer incentives with rebates and come out with cheaper loans, as opposed to borrowing from credit unions or banks.

3. Advantages of captive auto financing

• Credit guidelines are not as strict

Captive finance companies could offer loans to people with damaged credit and those who cannot get loans from a credit union or a bank. Since captive lenders loan money for their own products, the risk is relatively low and they are willing to take chances on those who will probably not qualify for loans elsewhere.

• Better loan terms

Since the levels of risk are lower for captive lenders, they often end up offering better deals to those who borrow money from them in the form of cash rebates or low-interest rates.

• Easy to apply

It’s easier to apply for loans from captive lenders, saving borrowers a lot of hassle as well as time wastage.

4. Disadvantages of captive auto financing

• Pressure for purchasing add-ons

There are times when captive auto finance dealerships try to push additional things when one is buying a car such as fabric protectant, undercoats, extended warranties, etc.

• Easy to overbuy

Sometimes, captive lenders tend to overlook serious issues such as poor credit. So, when borrowers with poor credit take captive auto finance loans, they find themselves with loans which they are unable to repay.

• Shorter loan terms

Shorter terms aren’t always a bad thing, but that translates to higher monthly payments.

• Inflated fees

Auto finance borrowers need to be wary of interest rates provided by captive lenders. One must make it a point to know about and collect interest rates from many places before taking a loan with high-interest rates.