In a wholesale lending situation, a lender doesn't deal directly with borrowers. Instead, the lender relies on a loan broker to find them. Wholesale loans are typically extended at a lower interest rate than would be the case if the lender dealt directly with the borrowers, which is known as "retail lending." However, once the broker's fee is added on to the wholesale loan, the cost to the borrower is roughly the same as a retail loan.
Reasons Behind Wholesaling
Lenders are willing to make wholesale loans through brokers at lower interest rates because it saves them the work and expense of having to find borrowers through advertising and promotion. Some lenders don't have retail operations at all, and instead they rely solely on brokers to deliver clients. Borrowers, meanwhile, can go through a broker to "shop around" for the best loan with minimal hassle.