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What’s The Difference Between Banks And Finance Companies?

What’s the Difference Between Banks and Finance Companies?

Finance Companies Don’t Offer the Same Services as Banks…Exactly

If you are in the market for a new or used vehicle and plan to finance your purchase, you will soon learn you don’t have to rely on your dealership to arrange an auto loan for you. There are a number of finance sources competing for your business, including banks and non-bank financial companies, also known as NBFCs.

Banks and finance companies are both considered financial institutions, meaning they accept money from customers or investors, then use that capital to make loans. Both are heavily regulated, and both can fail if they run out of money or fall victim to mismanagement or fraud.

the differences between banks and finance companies often lie with their services

So what is the difference between banks and a finance companies? The answer lies in the way they are structured and the services they offer.

  1. Licensing and Services

To call itself a “bank,” a financial institution must obtain a state banking license. This license allows a bank to provide services such as setting up checking accounts and issuing debit cards, arranging for wire transfers with other institutions, and serving as an intermediary for interstate and international transactions.

Finance companies provide many of the some of the same services as banks, including auto financing and home loans, retirement planning and underwriting. But they don’t generally accept deposits.

  1. Risk Level

Banks and finance companies are both considered “direct lenders,” meaning their analysts review your loan application, then decide whether to approve it. However, some finance companies are generally willing to accept a higher level of risk, meaning they are more likely to approve loans for customers who may have had past credit issues.

This doesn’t mean finance companies are reckless or poorly managed. It just means they are comfortable with a higher level of risk, which allows them to serve a larger market.

  1. Specialization

A key advantage to partnering with a finance company is that it is more likely to be specialized. Most banks serve a wide range of customers, businesses, and other interests. Auto finance companies like Innovative Funding Services are built to meet the specific needs of car buyers, and they know that industry inside and out.

Innovative Funding Services is not a bank. At IFS, we specialize in auto loan refinancing and lease buyouts, and we serve customers with a range of credit scores. Let us know how we can serve you, and please feel free to add to the conversation by clicking on the links below!

 

Jennifer Bonessi

Jennifer is a blogging mom of three who loves her dusty minivan. "Its the closest thing to a spaceship I'll ever drive!" She writes for IFS and a variety of other niche publications.

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