Finance companies play a major role in the overall health of an economy. They provide loans to businesses, mortgages to homeowners, and insurance to consumers. When the finance companies are weak, the economy suffers. They are also popular investment vehicles, paying dividends to shareholders and providing a stable income for investors. The financial sector took a beating during the financial crisis of 2007-2008, but is much stronger now.
Finance companies provide a variety of different types of loans, including unsecured and secured personal loans. As a result, they are less regulated than banks, so it’s important to understand the terms of the loan before making a decision. Some finance companies even market their loans as credit cards. When considering which loan to choose, make sure you fully understand the terms and conditions of the loan before signing the loan agreement.
Finance companies are nondepository financial institutions, and their primary business is debt and lease financing. As of 2015, these companies held $747 billion in consumer, business, and real estate debt. This makes them the third largest institutional supplier of consumer credit. They provide a substantial amount of motor vehicle lease financing, and they account for a significant portion of residential mortgage originations.
A finance company’s business portfolio includes short-term and medium-term credit, as well as leasing to finance inventories, equipment, and accounts receivables. Lastly, they hold a small portion of commercial real estate debt.