What Is a Retail Lender?

A Retail Explained in Less Than 5 Minutes

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A retail lender offers money to individual borrowers and retail customers, not institutions. Credit card companies, banks, credit unions, and alternative lenders are all good examples of retail lenders.

In comparison, a wholesale lender underwrites loans for other lenders. Instead of working directly with the borrower, wholesale lenders offer loans through a third party, such as a bank, credit union, or mortgage lender. Understanding the difference between the two will help you identify the best choice for your situation.

Definition and Example of a Retail Lender

A retail lender works directly with individual borrowers or retail customers to process their loan rather than working through institutions. Banks, credit card companies, and credit unions are all considered retail lenders. With retail loans, an employee of the lender—typically called a loan officer—obtains the loan, reviews the application from the borrower, and tracks the application through the closing process.

You can apply for many different types of retail loans. Personal loans, credit cards, and mortgages are all examples of retail lending products. When a soon-to-be college student applies for a student loan, that is also a form of retail loan.

Individual companies can also apply for retail loans. If businesses apply for a business line of credit, installment loan, or mortgage, these loans are also considered retail loans.

How a Retail Lender Works

A retail lender offers loans to individuals and retail customers. Unlike wholesale lenders, a retail lender works directly with the borrower and is responsible for underwriting and servicing the loan in-house.

Credit card companies, banks, and mortgage lenders are all good examples of retail lenders. Retail lenders offer a wide variety of loans, including mortgages, auto loans, credit cards, and personal loans.

Retail loans can also refer to lending products offered directly to retailers, and these loans are designed for small business owners. For example, inventory loans are desirable for retailers that sell products. These loans can be used for working capital, equipment, advertising, or several other purposes.

Retail Lending vs. Wholesale Lending

Retail Lenders Wholesale Lenders
Provides loans directly to individuals and retail customers Underwrites loans for other lenders
Deals directly with the consumer Does not deal directly with the consumer
Underwrites the loan and services it in-house Offers the loan through a third-party

Retail lenders work directly with consumers and will typically originate and service the loan in-house. They are responsible for each part of the lending process, including finding the customers, handling the application process, and underwriting and servicing the loan.

In comparison, wholesale lenders don’t work directly with consumers. Instead, they underwrite loans for other lenders. If you applied for a mortgage, a mortgage broker would act as the third party. They would be responsible for working with multiple mortgage lenders to choose the right mortgage loan product for you. Wholesale lenders are responsible for underwriting the loans, locking in the rates, and funding the loan.

Larger lenders will sometimes offer both retail and wholesale loans. Both types of lenders have their advantages, and it’s important to do your research to determine which is the best option for your situation.

If you choose to take out a loan through a wholesale lender, double-check the full cost of the loan. While wholesale lenders sometimes offer lower rates, they often tack on additional fees, which may cause you to pay more in the long run.

What Retail Lending Means for You

If you’re considering applying for a loan with a retail lender, there are many advantages to consider.

Personalized Experience

Most retail lenders have loan officers that work directly with borrowers. These professionals will work with you closely to understand your situation and find the best loan terms for you. This is unique for retail lending, as compared to wholesale lending.

With wholesale lenders, the third-party liaison (or mortgage broker, in the case of mortgages) will earn fees based on the loan amount. They may be driven by the terms of the agreement, meaning they won’t always choose the terms that are best for you.

Following the 2008 financial crisis and the passing of the Dodd-Frank Act, retail lending standards have increased. Retail lenders have higher standards of underwriting and greater lending transparency disclosures to follow. As a result, the quality of loans being issued to consumers has improved significantly.

Diverse Experience

Retail lenders have typically worked with a wide variety of customers and underwritten many different types of loans. In this case, you will often benefit from their knowledge and experience. Plus, they’ve likely dealt with many complex loan situations.

May Have Local Connections

If you choose to work with a local bank, your lender may have a number of connections within the community. That means they generally have many resources at their disposal that can help you during the loan process.

Key Takeaways

  • A retail lender works directly with individual borrowers or retail customers to process their loans.
  • Credit card companies, banks, credit unions, and alternative lenders are all considered retail lenders.
  • Retail lenders also offer loan products directly to retailers or small businesses to cover working capital, equipment, and marketing expenses.
  • Wholesale lenders differ from retail lenders in that they underwrite loans for other lenders and don’t deal directly with the consumer.
  • Generally, retail lenders provide a personalized experience to their customers, have a wide variety of experiences to draw from, and may have local connections in the community.