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What is a consumer finance company?

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Quick Answer

A consumer finance company is a financial company that provides loans to consumers who are otherwise unable to obtain financing from a bank, explains InvestorWords. Generally, a consumer finance company imposes a higher interest rate.

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Full Answer

Consumer finance loans are sub-prime loans, and making timely monthly payments generally helps individuals boost their credit scores, says Loans.com. Consumer finance loans are for individuals who have poor credit, or who are having a difficult time obtaining credit for certain purchases. Borrowers are considered high risk, which is why a consumer finance loan generally has a higher interest rate.

Consumer finance loans are used to purchase goods such as a car or furniture for a home, or to pay off interest rates on credit cards, explains Loans.com. Some differences between a consumer finance company and a bank or credit card are state banking regulators oversee banks, and the federal government oversees credit card companies. However, consumer finance companies must adhere to the rules of the state in which they do business. Once such rule for consumer finance companies that offer auto loans is that the company is not allowed to use deceptive practices to market their leases or loans, or mislead customers about the terms or benefits of the loans, notes CreditCards.com.

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