An indirect loan refers to a type of loan arrangement where a financial institution, such as a bank or credit union, facilitates a loan between a borrower and a third-party lender. In this arrangement, the financial institution acts as an intermediary, helping the borrower obtain financing from another lender rather than providing the loan directly from its own funds.

Here’s how an indirect loan typically works:

1. **Borrower Application**: The borrower applies for a loan through the financial institution, such as a bank or credit union. The borrower may visit the institution’s branch office or apply online, providing information about their financial situation, credit history, and the purpose of the loan.

2. **Loan Processing**: The financial institution reviews the borrower’s application and assesses their creditworthiness. Based on the borrower’s profile, the institution determines whether to approve the loan application and the terms and conditions of the loan, including the interest rate, repayment schedule, and loan amount.

3. **Third-Party Lender**: Instead of funding the loan directly from its own resources, the financial institution partners with a third-party lender, such as a finance company or auto dealership financing arm. The third-party lender provides the funds for the loan, while the financial institution serves as the intermediary between the borrower and the lender.

4. **Loan Disbursement**: Once the loan is approved and finalized, the funds are disbursed to the borrower by the third-party lender. The borrower may receive the funds directly or use them to make a purchase, such as buying a car or financing a consumer durable.

5. **Repayment**: The borrower repays the loan according to the terms and conditions agreed upon in the loan agreement. Payments are typically made to the financial institution that facilitated the loan, which then forwards the payments to the third-party lender. The financial institution may also service the loan, handling tasks such as billing, collections, and customer service on behalf of the third-party lender.

Indirect loans are commonly used in various financing scenarios, including auto loans, retail installment contracts, and consumer loans. They offer borrowers access to financing from multiple lenders through a single application process, while providing financial institutions with opportunities to earn fees or commissions for facilitating the loan transactions. However, borrowers should carefully review the terms and costs associated with indirect loans and compare them with other financing options to ensure they are obtaining the most favorable terms for their needs.