Financing is a indirect loan wherein retailers issue funds to their borrowers/ customers. Dealer financing involves acquiring commercial loans for a lower interest rate and then selling those loans to the customers for a profit. It helps save time for customers, helps boost revenue for dealer, helps customers with low credit score and enhances customer experience.
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Step 1. A borrower/customer submits a credit application to the dealer. The dealer then circulates the customer’s credit application and other requisite documents within its lending network.
Step 2. Borrowers are offered options from which they can choose lenders by comparing various lenders by tallying charges and selecting the best one.
Step 3. Dealers benefit substantially by extending financial aid to borrowers who otherwise would not be able to avail of credits on their own. Since dealers make obtaining funding more effortless and straightforward, they increase their sales.
Step 4. Also, with dealer financing, a retailer’s financial network provides loans based on a borrower’s credit profile. And it is the third-party financial institution or bank that
determines all related terms, rates and collects the payments from borrowers.
Step 5. Lenders quote the buy rate (interest rate) to the dealer to finance a loan, and dealers are free to charge higher interest rates from their borrowers.
Step 6. Dealer finance schemes also provide loans to high-risk customers, and the interest rate charged is also relatively high. Additionally, dealers can also claim the sold products/items from borrowers if they miss any payment.