Wholesale Loans

Posted in Finance, Accounting and Economics Terms, Total Reads: 2732

Definition: Wholesale Loans

Wholesale Loans are kind of loans in which the lender gives amount to the loan broker and the loan broker distributes the loan amount to the customer unlike the retail loan where the lender directly gives to the customer. In wholesale loan, the lender gives amount to the broker relatively at lower rate, the broker adds his commission before giving to the customers. Hence the customer gets approximately the same rate of interest as that of the retail loan.

Example: Suppose X is the rate at which lender gives money to the broker and Y is the rate at which the broker gives to the customer. Then “Y-X” is known as the yield spread premium.

Benefit: Through wholesale loan the lender don’t need to look for the customer. In that way the lender saves the cost of advertising and promotion. Hence the lender charge a relatively lower rate to the broker.

A lot of activities are involved in a loan process.

1. Lock in loan terms: To determine a specific interest rate for a certain duration of time.

2. Underwrite loans: To assess the credit worthiness of the customer and decide if the risk is worth taking.

As the loan broker has connection with a number of wholesale lenders, customer can get a best terms and loan rates. This helps customer to reduce the searching and comparing time of different loan offered from multiple banks.

When the pool of money of wholesale lender’s finished as part of giving loan, then the lender will bundle all the loans to form a security and sell the security in the secondary market to earn some more money.

Hence, this concludes the definition of Wholesale Loans along with its overview.

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