Dealer Financing

DEFINITION of 'Dealer Financing'

Loans that are originated by a retailer to its customers and are then sold to a bank or other third-party financial institution. The bank purchases these loans at a discount and then collects principle and interest payments from the borrower. Also called an indirect loan.

BREAKING DOWN 'Dealer Financing'

A well-known example of dealer financing is auto dealers that offer car purchase financing. Many car dealers markup the finance company's interest rate and keep the difference as additional profit.