Investor's wiki

Captive Finance Company

Captive Finance Company

What is a captive finance company?

Captive finance companies are financial institutions that offer their services to customers of a retailers to let the customers buy the retailer's products.

More profound definition

Captive finance companies are wholly owned auxiliaries of retailing or manufacturing firms that assist customers with financing big purchases. They offer a broad assortment of services from full-scale banking to essential card services. Captive finance companies might be essentially profitable to the parent company.
The primary purpose of captive finance companies is to fund the products of the parent companies by basically expanding credit to their customers. This funding empowers the parent companies to increase sales and stay away from the battle with outsourcing funds from outside lenders with over the-board requirements. Parent companies likewise benefit from the interest charged by the captive companies.
Captive finance companies don't give the conventional cash loans. Hence, they give better terms to their parent companies due to the negligible risks implied in the funding. This permits the financing company to offer somewhat better arrangements, which might incorporate lower interest rates and cash rebates.
Captive finance companies additionally offer simpler financing answers for harmed credit. This can assist with helping corporations that are ineligible to access loans from other financial institutions in light of income or credit issues.

Captive finance company model

Johnnie needs to buy a vehicle. He loves a specific brand of vehicle, and finds that when he goes to the showroom that the automaker possesses a captive finance company, which will issue him a loan. Johnnie goes into a loan-like situation where he finances his new vehicle straightforwardly from the captive finance company owned by the automaker.


  • Their purpose is to give the parent company a substantial source of profit and furthermore limit the company's risk exposure.
  • Captive finance companies give store credit cards to retailers and full-scale banking, including long term vehicle loans.
  • A captive finance company is a wholly-owned subsidiary of an automaker or retailer that gives loans and other financial services to the customers of those companies.