Indirect Loan

A A A

DEFINITION

Any loan that is transferred from a dealer who originated the loan to a third party. Any buyer of indirect loans is known as a holder in due course and is now entitled to receive principal and interest payments.

An example of an indirect loan is a car loan offered to a customer at a dealership which is then purchased by the third party at a discount. In this example, the third party never met the borrower but is now entitled to received payments from the loan.

INVESTOPEDIA EXPLAINS

A large percentage of outstanding loans are indirect loans. This is especially true in the mortgage industry, where many lenders package their loans and sell them to governmental agencies such as Fannie Mae and Freddie Mac. Banks and finance companies often purchase installment contracts at a discount from dealers at a discount from the face value of the loans. This allows them to get new customers without actually interviewing the borrower.


RELATED TERMS
  1. Lender

    Someone who makes funds available to another with the expectation that the funds ...
  2. Loan

    The act of giving money, property or other material goods to a another party ...
  3. Credit Limit

    The amount of credit that a financial institution extends to a client. Credit ...
  4. Bank

    A financial institution licensed as a receiver of deposits. There are two types ...
  5. Credit

    1. A contractual agreement in which a borrower receives something of value now ...
  6. After-Acquired Collateral

    Collateral for a loan obtained after the borrower has already entered into a ...
  7. Lease Balance

    The amount of money that a customer owes under the terms of a vehicle lease ...
  8. Segregated Disclosures

    A series of lender declarations that are required by law to be grouped separately ...
  9. Capitalized Cost Reduction

    Any upfront payment that reduces the cost of financing. Capitalized cost reduction ...
  10. Technical Default

    A deficiency in a loan agreement that arises not from a failure to make payments ...
Related Articles
  1. Should You Borrow From Your Retirement ...
    Retirement

    Should You Borrow From Your Retirement ...

  2. How To Read Loan And Credit Card Agreements
    Credit & Loans

    How To Read Loan And Credit Card Agreements

  3. The Benefits Of Mortgage Repayment
    Home & Auto

    The Benefits Of Mortgage Repayment

  4. Can You Live A Debt-Free Life?
    Credit & Loans

    Can You Live A Debt-Free Life?

  5. Tired Of Banks? Try A Credit Union
    Retirement

    Tired Of Banks? Try A Credit Union

  6. Car Payments: 'Til Death Do Us Part ...
    Home & Auto

    Car Payments: 'Til Death Do Us Part ...

  7. How to Avoid Being the Victim of Auto ...
    Home & Auto

    How to Avoid Being the Victim of Auto ...

  8. How Google's Self-Driving Car Will Change ...
    Investing News

    How Google's Self-Driving Car Will Change ...

  9. Americans Are Borrowing More To Buy ...
    Home & Auto

    Americans Are Borrowing More To Buy ...

  10. Common Liabilities That Hurt Your Net ...
    Budgeting

    Common Liabilities That Hurt Your Net ...

comments powered by Disqus
Hot Definitions
  1. Genuine Progress Indicator - GPI

    A metric used to measure the economic growth of a country. It is often considered as a replacement to the more well known gross domestic product (GDP) economic indicator. The GPI indicator takes everything the GDP uses into account, but also adds other figures that represent the cost of the negative effects related to economic activity (such as the cost of crime, cost of ozone depletion and cost of resource depletion, among others).
  2. Accelerated Share Repurchase - ASR

    A specific method by which corporations can repurchase outstanding shares of their stock. The accelerated share repurchase (ASR) is usually accomplished by the corporation purchasing shares of its stock from an investment bank. The investment bank borrows the shares from clients or share lenders and sells them to the company.
  3. Microeconomic Pricing Model

    A model of the way prices are set within a market for a given good. According to this model, prices are set based on the balance of supply and demand in the market. In general, profit incentives are said to resemble an "invisible hand" that guides competing participants to an equilibrium price. The demand curve in this model is determined by consumers attempting to maximize their utility, given their budget.
  4. Centralized Market

    A financial market structure that consists of having all orders routed to one central exchange with no other competing market. The quoted prices of the various securities listed on the exchange represent the only price that is available to investors seeking to buy or sell the specific asset.
  5. Balanced Investment Strategy

    A portfolio allocation and management method aimed at balancing risk and return. Such portfolios are generally divided equally between equities and fixed-income securities.
  6. Negative Carry

    A situation in which the cost of holding a security exceeds the yield earned. A negative carry situation is typically undesirable because it means the investor is losing money. An investor might, however, achieve a positive after-tax yield on a negative carry trade if the investment comes with tax advantages, as might be the case with a bond whose interest payments were nontaxable.
Trading Center