Introduction to Finance

Finance companies
provide loans directly to consumers 
and businesses or aid individuals in obtaining fi nancing. Sales and consumer fi nance com-
panies lend to individuals. 
Sales fi nance companies
fi nance installment loan purchases of 
automobiles and other durable goods, such as washers, dryers, and refrigerators. 
Consumer 
fi nance companies
provide small loans to individuals and households. 
Commercial fi nance 
companies
provide loans to businesses that are unable to obtain fi nancing from commercial 
banks. However, commercial fi nance companies are not included in Figure 3.2 because they 
do not accumulate the savings of individuals but rather get funds for making loans to busi-
nesses from other fi nancial institutions.
Mortgage banking fi rms
, or mortgage companies, help individuals obtain mortgage loans 
by bringing together borrowers and institutional investors. A 
mortgage loan 
is a loan on real 
property, such as a house, whereby the borrower pledges the property as collateral to guarantee 
that the loan will be repaid. The primary mortgage market, where home and other real property 
loans are “originated,” is very important to the success of the fi nancial system. Traditionally, 
once a mortgage loan was originated it was held by the lender until maturity or until the loan was 
prepaid. However, as individual mortgage loans became more standardized, there have arisen 
secondary mortgage markets, in which existing real property mortgages are bought and sold.
DISCUSSION QUESTION 1
Assume you want to open both a check-writing account and a savings account. Would 
you prefer holding the accounts in a commercial bank, savings and loan association, or 
a credit union? Why?
LEARNING ACTIVITY
1. Go to the Citibank website, http://www.citibank.com. Find information on the savings