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Consumer Finance Companies

Published by sam - 28/09/07 - 04:09:27 am

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Advertising heavily through television commercials, consumer finance companies offer personal loans and, more recently, home equity loans and second mortgages at interest rates consistently and significantly higher than those charge by banks.  Many consumers believe that the higher rates are necessary because these companies make loans to borrowers whose credit ratings are not good enough to qualify them for a bank loan, and to source extent televisions commercials reinforce this impression.  But a recent study indicates that this is not true.  A loan application has at least as good a chance of approval by a bank as by a loan company.  The higher interest rates are due in part to the finance companies higher costs in obtaining money to lend, and perhaps also to their high expenditures or advertising.  They cannot draw on low cost depositors funds in savings and checking accounts but must obtain funds from commercial sources at money market rates.  Given their consistently higher rates, finance companies should be a last resort for any kind of loan or mortgage.

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