Understanding The Nuances of Finance Companies

by David Jenyns on February 29, 2008

The buyer agrees to pay the finance company $3,000 plus interest over, say, three years. The finance company then sends to the refinance company this sales contract and is lent by that company perhaps $2,700, a part of the money the smaller company advanced for the purchase.

The refinance company makes a substantial charge to the smaller finance company for this money and keeps the conditional sales contract as security or collateral. If the smaller company falls down on its interest payments to the larger company, the latter company can collect directly from the car purchaser. This construction company has its own finance company and the latter sells its conditional sales contracts to larger finance companies. The investor would thus hold the conditional sales contract on the home and have the guarantee of the finance company plus the guarantee of the construction company. This is a form of lending to a finance company with guarantees and collateral.

Major cities are filled with little, unethical finance companies, and in a city like New York a finance company would have to be triple checked before investing one dollar.

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