Question

1. What is the primary function of finance companies? How do finance companies differ from depository institutions?

2. What are the three major types of finance companies? To which market segments do each of these types of companies provide service?

3. What are the three major types of finance companies? To which market segments do each of these types of companies provide service?

4. What are the major types of consumer loans? Why are the rates charged by consumer finance companies typically higher than those charged by commercial banks?

5. Why have home equity loans become popular? What are securitized mortgage assets?

6. What advantages do finance companies have over commercial banks in offering services to small business customers? What are the major subcategories of business loans?

Which category is the largest?

7. What have been the primary sources of financing for finance companies?  

Answer 1

1) The primary functions of the finance companies is to provide or give loans to individuals and corporates. The finance companies doesn't provide or accepts the deposits from the public where as the depository institutions accept and provides services which a bank provides like savings bank, commercial banks services etc

2) The three major types of finance companies are i)sales finance companies, ii) personal credit finance companies, iii) business credit finance companies. These finance companies provides services to

i) sales finance companies provides services to give loans to retail customers.

ii) personal credit finance companies provides services to gives personal loans to individuals of different categories.

iii) business credit finance companies provides services to body corporates for making loans to buy equipment to their factory and also undertakes factoring services of different body corporates.

3) Same 2nd question repeated.

4)Major types of consumer loans are household appliances loans , vehicle loans , real estate loans, SME loans . The rates charged by the consumer finance companies is higher than those charged bye the commercial banks are that because of high risk factor involved in the consumer loans.

5) Home equity loan is the loans given against the collateral of house property to its owner. The loan is given as per the latest market value. These type of loans became popular because the loans gets easier and very fast to the owners of that house property. The securitized mortgage asset is the asset that is mortgaged property for getting the loan by using it as a collateral to the loan.

6) The advantage the finance companies get over the commercial banks in offering services to small business customers is that finance conpanies get higher rate of interest and they can have collateral securities from the small business customers. The major subcategories of business loans are cash credit, working capital loan, purchase order loans , merchant cash advance loans etc. Of the above the cash credit loans is the largest.

7)The primary source of financing to financial companies are -crowd funding

- equity issue

- debenture issue

- retained earnings of the company etc