The former Dundee United front man, who has also played for Albion Rovers and Montrose, joins the Bannsiders from the Candystripes until January.
"Jordan gives us another option up top and provides a bit more competition for places," said Coleraine Oran Kearney.
"He holds the ball and can go in behind defences and runs the channels well. He can also finish too and has a lot of experience despite only being 21."
Allan started off in Dundee United's academy, going out on loan to Albion Rovers during the 2013-14 season, before joining Scottish League One team Morton in July 2014.
He made eight appearances for the club during the 2014-15 season for the club before moving to League Two side Montrose in January 2015.
Allan went on to play a part as Montrose survived dropping out of the league by beating Highland Football League side Brora Rangers.
The striker left Montrose after the season's end in July 2015 and joined Derry last December.
Coleraine have signed Scottish striker Jordan Allan on loan from Derry City.