Question

What lending areas does Savings Institutions, Credit Unions, and Finance Companies each specialized?

Compared to commercial banks, what advantages and disadvantages does each have?

Answer 1

Every financial institution is lending for the purpose of gaining amount over the deposits since the deposits are the source for lending, the duration and the amount significantly affect the areas in which the money is lended to

Coming to the specifics

Saving institution lending areas:

These institution take deposits from the people and lend in the areas such as personal loans, mortgages, since the size of such loans is not huge as such of loans to corporations, the loans amount is minimal and time bound and however the interest rates on such loans is greater than the interest rates on deposits

Compared to commercial banks the following are advantages and disadvantages

Advantages:

Mutually owned by customers so there is less risk of default over repayment.

Lesser stringent norms while applying and loan clearing.

Disadvantage:

High interest rates over loans

Less diversification of lending areas, as they serve single type of clients

Credit unions:

The only difference in the credit unions and banks is, credit unions are not for profit organizations they cater to the lending demands of business just like the banks the only difference is it is done for business associated with the unions and for the time bound period, there is one board of member which oversees the overall functioning of the union and such union supports the people and business belonging to the trade group.

Credit unions have lower financing fees

Credit unions require to have lower balance in the account

Disadvantage

Credit unions have lack of access to technology

Not all the credit unions have access to the ATM's

Finance companies.

The finance companies are used to finance the loans belonging to their particular assets such as housing finance companies which help in financing the houses, mortgages or automobile finance companies which provide personal loans of vehicle down payment or purchases.

Advantages

Finance companies are run by corporates

Driving sales is the main motive of the finance companies which will cater to the financial demand of the customers.

Disadvantages

Larger interest rates compared to commercial banks

Lending for purchasing limited assets ; not lending for all purposes

Major and most common difference between these institutions and commercial banks is  

Unlike commercial banks which need to keep aside some amount of deposits with them as they need to protect the deposits and give out loans from the remaining deposits the above financing institution are not held liable to keep deposits safe.

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