U.S. Financial Institutions
While you read this page, think about what the key financial institutions are and the role they play in the process of financial intermediation. How do each of these financial institutions differ from one another?
U.S. Financial Institutions
Finance Companies
A finance company makes short-term loans for which the borrower puts up tangible assets (such as an automobile, inventory, machinery, or property) as security. Finance companies often make loans to individuals or businesses that cannot get credit elsewhere. Promising new businesses with no track record and firms that can't get more credit from a bank often obtain loans from commercial finance companies. Consumer finance companies make loans to individuals, often to cover the lease or purchase of large consumer goods such as automobiles or major household appliances. To compensate for the extra risk, finance companies usually charge higher interest rates than banks.
- What is the financial intermediation process?
- Differentiate between the three types of depository financial institutions and the services they offer.
- What are the four main types of nondepository financial institutions?