Posted in Finance, Accounting and Economics Terms, Total Reads: 341
Definition: Dealer Financing
When you buy any product from a retailer, the retailer might grant you loan or credit. He then transfers the same to a bank or financial institution (3rd party) at a discounted price. The principal and the interest we pay will then be collected by the 3rd party. Hence this is also known as indirect loan or dealership financing.
The most common examples of dealership financing is in the case of the distributor from whom we purchase an automobile. He transfers the credit to a bank.
The rate at which the distributor offers credit to us is usually at a rate higher than the normal rate. This is because he further discounts it and transfers the same to a bank. The difference is the profit that he makes. Thus it is always better to consult a few distributors before taking a loan.