Captive Finance Company
Categories: Banking
You know how a lot of actors and actresses try to become singers, and vice versa? They’re trying to get a slice of another industry, even if they can act but can’t sing, or can sing but can’t act. Can’t blame them for trying, right?
Captive finance companies are kind of like that: they’re tools for large companies who want a slice of the finance industry.
Captive finance companies are wholly owned subsidiaries (meaning: a smaller company totally owned by the main company). The captive finance companies do financey-things (like offer credit card services, banking services, and even loans and all the stuff the big banks do) to people like us. These mini-finance companies do their thing making money off of financial products, which can make a tidy profit for their overlord/company that owns them.
Usually, retailing and manufacturing firms are the ones that have captive finance companies. For instance, many automakers may have their own captive finance companies that do auto loans for the cars they make. Those retailers that offer you credit cards? Probably through their captive finance company. Why have a captive finance company separate? Well, lots of reasons, but at the most basic level: because finance companies have a lot of rules to follow, and it’s cleaner and easier (and safer) to keep your finance branch very separate from your making-things branch.
