Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Aug 3, 2021

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Indirect auto loans are loans that are sold by auto dealers to third parties like banks or other types of lenders. Buyers of indirect auto loans are known as “holders in due course.” A holder in due course is entitled to receive principal and interest payments from a borrower.

In indirect auto lending a dealer will usually collect information from borrowers and furnish it to banks. Banks can either accept or reject applicants, but they do so without ever coming into contact with applicants. Usually dealers package loans into bundles for purchase to potential holders in due course.

What Do Indirect Auto Lenders Look Like in Real Life?

An example of this practice would be a car loan that gets lent to a borrower at a car dealership. The borrower submits their income and credit documentation to a car dealership representative. The representative runs the credit and sends the information out to different banks and lenders. Banks or lenders can say yes or no and send the rate and terms they’re willing to offer.

The bank, however, would never interview or even meet the borrower who was at the car dealership. They would finalize the loan based on the information and documents provided by the car dealer.

Upon purchasing the dealership-originated financing, the bank would own the indirect car loan and thus be entitled to receive all payments that would be made. If the borrower defaults on payments then the bank would also be responsible for pursuing the borrower. They would also service the loan meaning they would issue an account number and send payment stubs or a web login.

This arrangement is different from direct auto loans where loan officers would work for the lender, and the lender would complete the application process. They would not have a lending partner, and they would only present one option. So the borrower would have to consent to run their credit multiple times to get different rate quotes. This is part of why indirect auto financing has become increasingly common.

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What Are The Benefits of Indirect Auto Lending Programs?

While prospective borrowers would typically spend time searching for direct auto lending on their own, indirect car loans are often lent out by dealerships on the same day that a car is purchased.

For some borrowers, convenience and time is a priority. By choosing indirect auto lending, borrowers don’t have to spend a lot of time searching and applying at different lenders for auto financing. Instead, they can simply walk into an auto dealer and secure indirect auto loans after selecting the car they wish to purchase.

The drawback, however, is that borrowers may end up paying a higher price for this convenient, same-day service.

The drawback, however, is that borrowers may end up paying a higher price for this convenient, same-day service.

For those willing to do their homework, obtaining a car loan quote before walking onto a dealership may result in a much better interest rate.

If you’re shopping for an auto loan, you can check in with individual financial institutions. You can also get multiple quotes at once. Enter your ZIP code below to view lenders with cheap loan rates.