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Indirect Loan Definition
By Julia Kagan
Updated November 30 in 2020.
Reviewed by Khadija Khartit
What is an Indirect Loan?
An indirect loan could refer to an installment loan in which the lender, whether the original issuer of the loan or currently the the holder of the debt is not in direct connection with the person who is borrowing.
Indirect loans can be obtained through an intermediary or a third party through the help from an intermediary. The loans that are traded on the secondary market may also be considered indirect loans.
Through allowing borrowers access to financing through third-party relationships, indirect loans can help to improve the availability of funds and manage risk. Many applicants who aren't eligible for direct loan may opt for an indirect loan instead. Indirect loans are generally more expensive and have higher interest rates, that is higher as direct loans are.
Important Takeaways
In an indirect loan, the lender does not have a direct relationship with the borrower, who is borrowing from a third-party, that is managed by an intermediary.
Indirect loans are typically used in the auto industry and dealers aiding customers obtain financing through their networks of financial institutions and other lenders.
Indirect loans tend to be more costly than direct loans because they are typically used by borrowers who might not otherwise qualify for the loan.
Learning about an indirect loan (Dealer Financing)
Numerous dealerships, merchants and retail stores that deal with big-ticket things, such as cars or recreational vehicles, collaborate with a range of third-party lenders in order to assist their customers in obtaining installment loans to finance purchases. Dealerships often have lending networks that comprise various financial institutions who are willing to assist the dealership's sales. Oftentimes, these lenders may be able to accept an array of lenders because of their relationships to the dealership.
Through the indirect loan process, the borrower fills out a credit application by way of the retailer. The application is sent to the financing network of the dealership, allowing the borrower to receive multiple offers. The borrower then has the option of choosing the most appropriate loan suitable for their circumstances. The dealership also benefits, in that, by helping the customer receive financing, it makes the sale. Because the interest rate on the dealer's account is more likely to be higher than that of a credit union or bank so it is recommended for buyers to check other financing options prior to deciding to finance their vehicle through the dealer.
While this sort of indirect loan is sometimes referred to by the name of "dealer financing" is actually dealers' network of financial institutions that are approving this loan (based according to the credit profile of the borrower), setting its terms and rates and collecting the loan payments.
Although an indirect loan is made available through an intermediary or retailer but the borrower is borrowing from a different financial institution.
How an Indirect Loan Works (Secondary Market)
Loans not originated directly by the lender who holds them may be considered indirect loans. When a lender sells a loan they are no longer responsible for it or receive any interest income from it. Instead, all the assets are transferred to a new owner who takes on the burden of administering the loan and collects the repayments.
Read every indirect loan contract carefully If the lender is unable to transfer the loan the buyer signed in the name of a loan provider, the lender may have the right to end the contract after the specified time and request that the buyer return the vehicle. The buyer then has the right to receive the amount of the down payment as well as the trade-in (or the amount from the sale) if a trade-in was included. In this situation, the dealer may attempt to persuade a buyer to sign a different agreement with less favorable terms, but the buyer isn't required to sign the contract.
Examples of Indirect Loans
Auto dealerships are one of the most popular businesses that deal in indirect loans and, in actuality, some authorities even call indirect loans an alternative to a auto loan.
Many consumers use dealer-financed loans for the convenience of being able to apply in-person and easily evaluate the offers. On the other hand, getting an automobile loan directly from an institution like a credit union or bank on its own provides buyers more leverage to negotiate, as well as the ability to shop among dealers. The interest rates could be better. But if a buyer has a spotty credit score or has a poor credit score, an indirect loan could be the most suitable option.
Loans actively trade on the secondary markets, too. specifically the group of loans which have been combined instead of individual loans. A lot of times, a credit union offers its customers loans or mortgages; doing so allows lenders to acquire new capital, reduce administrative costs and manage their level of risk.
In the market for home loans such as there are two organizations: Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corp (Freddie Mac) support the secondary trading of mortgages through their loan programs. These two government-sponsored enterprises buy mortgages that are home-backed loans from lenders, bundle the loans and then re-sell to help facilitate liquidity and improve the access to funds in the lending market.
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Dealer financing refers to loans that are made by a retailer which are then offered to banks or other institutions of a third party.
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News
Simulator
Your Money
Advisors
Academy
Vehicle Ownership Automobile Loans
Indirect Loan Definition
By Julia Kagan
Updated November 30 in 2020.
Reviewed by Khadija Khartit
What is an Indirect Loan?
An indirect loan could refer to an installment loan in which the lender, whether the original issuer of the loan or currently the the holder of the debt is not in direct connection with the person who is borrowing.
Indirect loans can be obtained through an intermediary or a third party through the help from an intermediary. The loans that are traded on the secondary market may also be considered indirect loans.
Through allowing borrowers access to financing through third-party relationships, indirect loans can help to improve the availability of funds and manage risk. Many applicants who aren't eligible for direct loan may opt for an indirect loan instead. Indirect loans are generally more expensive and have higher interest rates, that is higher as direct loans are.
Important Takeaways
In an indirect loan, the lender does not have a direct relationship with the borrower, who is borrowing from a third-party, that is managed by an intermediary.
Indirect loans are typically used in the auto industry and dealers aiding customers obtain financing through their networks of financial institutions and other lenders.
Indirect loans tend to be more costly than direct loans because they are typically used by borrowers who might not otherwise qualify for the loan.
Learning about an indirect loan (Dealer Financing)
Numerous dealerships, merchants and retail stores that deal with big-ticket things, such as cars or recreational vehicles, collaborate with a range of third-party lenders in order to assist their customers in obtaining installment loans to finance purchases. Dealerships often have lending networks that comprise various financial institutions who are willing to assist the dealership's sales. Oftentimes, these lenders may be able to accept an array of lenders because of their relationships to the dealership.
Through the indirect loan process, the borrower fills out a credit application by way of the retailer. The application is sent to the financing network of the dealership, allowing the borrower to receive multiple offers. The borrower then has the option of choosing the most appropriate loan suitable for their circumstances. The dealership also benefits, in that, by helping the customer receive financing, it makes the sale. Because the interest rate on the dealer's account is more likely to be higher than that of a credit union or bank so it is recommended for buyers to check other financing options prior to deciding to finance their vehicle through the dealer.
While this sort of indirect loan is sometimes referred to by the name of "dealer financing" is actually dealers' network of financial institutions that are approving this loan (based according to the credit profile of the borrower), setting its terms and rates and collecting the loan payments.
Although an indirect loan is made available through an intermediary or retailer but the borrower is borrowing from a different financial institution.
How an Indirect Loan Works (Secondary Market)
Loans not originated directly by the lender who holds them may be considered indirect loans. When a lender sells a loan they are no longer responsible for it or receive any interest income from it. Instead, all the assets are transferred to a new owner who takes on the burden of administering the loan and collects the repayments.
Read every indirect loan contract carefully If the lender is unable to transfer the loan the buyer signed in the name of a loan provider, the lender may have the right to end the contract after the specified time and request that the buyer return the vehicle. The buyer then has the right to receive the amount of the down payment as well as the trade-in (or the amount from the sale) if a trade-in was included. In this situation, the dealer may attempt to persuade a buyer to sign a different agreement with less favorable terms, but the buyer isn't required to sign the contract.
Examples of Indirect Loans
Auto dealerships are one of the most popular businesses that deal in indirect loans and, in actuality, some authorities even call indirect loans an alternative to a auto loan.
Many consumers use dealer-financed loans for the convenience of being able to apply in-person and easily evaluate the offers. On the other hand, getting an automobile loan directly from an institution like a credit union or bank on its own provides buyers more leverage to negotiate, as well as the ability to shop among dealers. The interest rates could be better. But if a buyer has a spotty credit score or has a poor credit score, an indirect loan could be the most suitable option.
Loans actively trade on the secondary markets, too. specifically the group of loans which have been combined instead of individual loans. A lot of times, a credit union offers its customers loans or mortgages; doing so allows lenders to acquire new capital, reduce administrative costs and manage their level of risk.
In the market for home loans such as there are two organizations: Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corp (Freddie Mac) support the secondary trading of mortgages through their loan programs. These two government-sponsored enterprises buy mortgages that are home-backed loans from lenders, bundle the loans and then re-sell to help facilitate liquidity and improve the access to funds in the lending market.
Sponsored
Reliable, Simple, Innovative CFD Trading Platform
Are you looking for a reliable CFD trading platform? With Germany's No. 1 CFD Provider (Investment Trends 2022), Plus500 is a CFD licensed provider whose platform is secured by SSL. The platform allows you to exchange CFDs on the world's most popular markets and take advantage of numerous trading opportunities. Select from more than 2,000 financial instruments and receive live, instant quotes. Learn the basics of trading through a trusted CFD service and test the demo free of charge today.
86 percent of retail CFD accounts lose money.
Compare Accounts
Provider
Name
Description
Related Terms
GSE stands for Government-Sponsored Enterprise. (GSE) Definition and Examples
A government-sponsored entity (GSE) is a quasi-governmental entity that enhances the flow of credit to certain sectors of the economy by providing the public with financial assistance.
More
What is the term "student loan forgiveness? How Does It Work, vs. Discharge
Student loan forgiveness allows you to be released from having to pay the loan amount, either in whole or in part. This is how to obtain student loans to be forgiven.
More
Dealer Financing
Dealer financing refers to loans that are made by a retailer which are then offered to banks or other institutions of a third party.
More
Collateral Definition, Types, & Examples
Collateral is an asset is accepted by a lender as security for extending the loan. If the borrower fails to repay and the lender is unable to pay, it can take possession of the collateral.
More
The Bond Market (aka Debt Market) The Bond Market: Everything You Should Know
Bond market refers to the collective term used to describe all transactions and the issue of bonds. Learn more about corporate, government and municipal bonds.
More
The basics of in-house financing Examples, Requirements, Types Example
In-house financing is a form of financing for sellers in which an organization extends its customers the option of a loan, allowing customers to purchase goods or services.
more
Partner Links
Related Articles
private and public. Federal Loans for College What's the Difference?
Student Loans
Private vs. Federal Loans for College What's the Difference?
Bills tower on man hand and documents are displayed on blue background.
Loans
The Best Ways to Borrow Money
Treasury Bonds
Repo vs. Reverse Repo What's the difference?
Teacher with students
Student Loans
Student Loan Forgiveness for Teachers
Money Mart advertising payday loans on storefront
Loans
Predatory Lending Laws: What You Need to Be aware of
A Home Purchase
How to Purchase a Foreclosed Home
TRUSTe
About Us
Terms of Service
When you have just about any inquiries regarding exactly where along with the way to use Payday Loans Near Me (http://www.mousacoast.org/VacationPackages/tour-packages-with-price), you can e-mail us at the web-site.
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