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9.3 Finance Companies
A finance company operates by issuing a prospectus inviting people
to deposit money with it. Deposits are for a fixed period of time and
interest rates offered, because of the greater risk to the lender,
are usually quite high. The finance company then lends this money at
a higher interest rate. Regular repayment is commonly required on
most loans. This means finance companies can switch their lending
from one purpose to another, to suit the economic situation. The main
lending activities are:
- To individuals for hire-purchase. Consumer durables and cars are
the items most commonly bought on hire purchase.
- Industrial lending which takes on two main forms.
- Large short-term loans may be made.
- Money is lent in hire-purchase for commercial vehicles,
machinery, and plant
Life assurance companies and Life insurance Companies
Premiums paid to insurance companies provide large amounts of
surplus finance until they are required to pay out on matured
policies. This money is available to the companies to be invested and
as used as personal loans. Large amounts must also be lent to the
government, and a considerable proportion is invested in commercial
properties which are rented businesses.
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Financial Choices
Institutions
The Reserve Bank