Time-Sale Financing

Not to be confused with timeshare financing, which you'll learn all about if you accept our free week's vacation to the Shmoop resort in the beautiful Industrial Estates section of unincorporated Tampa Hills, Florida.

Time-sale financing involves loans made from retailers to their clients. The most common form involves auto dealers, who provide financing for people who buy their cars.

Under a time-sale structure, these dealers would then sell the auto financing they originate to a third party (usually a bank or other institution). They sell the loans at a discount to their face value.

The car dealership doesn't get the full value of the loan, but they also don't have to carry the risk of default. They cash in early, leaving some money on the table, but getting a guaranteed return. Meanwhile, the bank now has the loan. They collect the payments from the borrower. They take on the risk that the car buyer might stop making the payments. But, as long as all the interest and principal gets paid, the bank stands to make a profit from the purchased loan.