Indirect Lending Benefits and Ultimate Guide

As a bank or credit union executive, you understand that in today's fluid financial landscape, it is essential to stay informed about the latest trends and opportunities that can provide your team with a competitive edge. The importance of constantly exploring new strategies to grow your loan portfolio while effectively managing risks and improving operational efficiency cannot be understated. One such opportunity is by leveraging indirect lending through intermediary partners—a powerful tool that can help you expand your customer base, enhance your profitability, and mitigate potential risks.

According to a recent post from Point Predictive, indirect lending has gained significant traction, bolstered by consumer demands for an easier, more frictionless way to get loans for their major purchases. The “buy now, pay later” technique even grew heavily on online storefronts as well, with Klarna reaching 147 million active users by 2021.

With the right partner, your bank or credit union can enjoy a wide range of benefits the indirect lending strategy offers. One benefit of indirect lending includes access to a broader pool of borrowers, many of whom might have been previously unreachable or unaware of your institution's offerings. For example, the Credit Union National Association found many credit unions leveraged indirect lending as a loan growth tool and have had success offering credit card balance transfers to members obtained through indirect auto loans.

In addition, indirect lending can enhance your risk management efforts. By allowing a third party to handle the loan origination and closing process, you can distribute the risk associated with lending and potentially achieve a more balanced and diversified loan portfolio.