Loan Companies can be divided into two categories banking and non-banking companies. Banking Corporations simply are organizations which can attach their names to the World Bank, while Non-Banking, Financial Companies are duly registered with their Central Banks cannot. While Non-Banking, Financial Companies can offer a wide array of financial products and services they cannot take in deposits except for Savings and Loans Associations which are also known as Thrifts. All of which offer loans and/or credit with an interest whose rate depends on the type of loan and loan company.
Commercial and investment banks are two examples of banking companies both offer loans with premium rates and other financial products and services. As these banks make loans that individuals and businesses can use for their daily operations, which in turn leads to more deposited funds that make their way to banks as it is the bank’s bread and butter. If banks, as loan companies can lend money at a higher interest rate than they have to pay for funds and operating costs, in which most of the time is the case, these types of loan companies make money.
Non-Banking Financial Corporations
Non-Banking Financial Corporations, in essence, are financial institutions that act as banks with a wide variety of financial products and services such as loans, credit and debt, retirement plans, and also investments. They don’t hold a banking license, though they are under banking laws, they can easily operate outside banking regulations. At times, because of those same reasons they can impose lower rates on the individual or corporate loans than their banking counterparts. They are not necessarily small or secondary companies, they could also be large corporations in direct completion with large asset laid banks.
In conclusion, there is not much difference between the two, in terms of being a loan company, both are guided by banking laws in terms of how they execute their terms, both handle individual and corporate, not to mention commercial accounts. Non-Banking Financial Corporations do not hold a banking license hence they can work outside the oversight of traditional banking regulations. It is actually based on the needs of the consumer on what or in what form of financial product the said consumer would need and the choices a banking or non-banking organization has to offer. In regards to the credibility, they are both in the same boat as there is also large-scale Non-Banking Financial Corporations are just as credible.