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.

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.

Investment dictionary. . 2012.

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