DEFINITION of 'Indirect Loan'

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.

BREAKING DOWN 'Indirect Loan'

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. Dealer Financing

    Loans that are originated by a retailer to its customers and ...
  2. Standing Loan

    A type of loan where payments are made of interest only. Repayment ...
  3. Term Loan

    A loan from a bank for a specific amount that has a specified ...
  4. Loan Register

    A journal that chronicles the recording of time loans. The loan ...
  5. Renegotiated Loan

    The result of an agreement between a borrower and a lender to ...
  6. Refinance

    1. When a business or person revises a payment schedule for repaying ...
Related Articles
  1. Insights

    An Introduction to Government Loans

    Government loans further policymakers' efforts to create positive social outcomes by offering timely access to capital for qualified candidates.
  2. Personal Finance

    Personal Loans vs. Car Loans

    How to tell whether a personal loan or a car loan is better for you.
  3. Personal Finance

    Understanding Term Loans

    A loan from a bank for a specific amount that has a specified repayment schedule and a floating interest rate.
  4. Personal Finance

    Understanding Loans

    A loan is the act of giving money, property or other material goods to another party with the expectation of being repaid.
  5. Personal Finance

    Personal Loans: To Lend Or Not To Lend?

    Attempting to help a loved one with a cash loan can put a strain on your relationship - and your bank account.
  6. Retirement

    Business Owners: A Guide To Qualified Retirement Plan Loans

    Thinking of adding a loan feature to your company's plan? Here's what you need to know.
  7. Managing Wealth

    Unsecured Personal Loans: 8 Sneaky Traps

    If you are seeking a personal loan, be aware of these pitfalls before you proceed.
  8. Personal Finance

    All About Government Loans

    There are many reasons to seek a government loan rather than one from a private lender. Government loans typically have low interest rates and offer fixed or subsidized options, as well as deferred ...
  9. Managing Wealth

    When Are Personal Loans a Good Idea?

    You never want to borrow money for frivolous reasons, but these five circumstances might warrant it.
RELATED FAQS
  1. Are secured personal loans better than unsecured loans?

    Read about the differences between secured loans and unsecured loans and how they are used. Learn about forms of collateral ... Read Answer >>
  2. What are the pros and cons of life insurance policy loans?

    Find out the pros and cons of borrowing against your life insurance policy to help you decide if this loan type is the right ... Read Answer >>
  3. What are the differences between delinquency and default?

    Find out more about loan delinquency, loan default, and the difference between a loan borrower defaulting and being delinquent ... Read Answer >>
Trading Center