An INDIRECT LOAN is an application submitted to a lender via an intermediary. This intermediary is the entity that will handle the loan approval on behalf of the initiating consumer. In the case of the automobile business, the dealership is the actual intermediary handling the particulars of the loan/lease on behalf of the consumer. The automobile dealership represents the consumer to the lender.
When an automobile dealership submits a loan application on behalf of the consumer the following is likely to happen:
#1 Indirectly approve you. The dealership will be responsible for setting the terms of the loan in respect to the number of months, the stated APR, and the amount of the monthly payment within the guidelines of the approval document from the approving lender. You, as a consumer, should carefully read the Retail Installment Contract or the Retail Lease Agreement, whichever is applicable in your case; to be sure you fully understand what you are signing.
#2 Conditionally approve you. Meaning, that if your request is granted, there may be conditions that you must meet prior to disbursement of funds. The actual approving lender would in this case need to send you a “Notice of Adverse Action”. The Notice of Adverse Action would not come from the dealership, but rather the lender to whom the dealership submitted your application.
#3 Decline the application. If the automobile dealership cannot get a lender to approve the consumer, the lender(s) to whom the application was submitted would send to the consumer a “Notice of Adverse Action”.
In the case of a CONDITIONAL APPROVAL, you must either meet the terms of the conditional approval (whatever they may be), or allow the dealership F&I Manager to argue successfully on your own behalf for a reconsideration.
In the case of a consumer applying to a Captive finance source, this should not be considered a Direct loan application. Captive finance sources only do loans on an indirect bases. This being the case, should you as a consumer make an application to a captive finance source, you will be unable to call the captive finance source and discuss terms/conditions. They will refer you to the Dealership who is the entity that will be setting the terms within the guidelines of the captive source.
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