Captive Finance Companies

Captive Finance Companies

A captive finance company—which is a subsidiary company of a larger corporation—can sometimes offer better car loan rates than other traditional loan companies; however, when it comes to taking out an auto loan, it's always wise to check the pros and cons of all your options.

What Is a Captive Finance Company?

A captive finance company is a subsidiary of a larger parent company. Generally, this larger parent company makes and sells a product.

When it comes to car loans, captive finance companies offer loans to car buyers who want to purchase vehicles from their parent companies.

For clarification, currently some of the biggest examples of captive finance companies in the automotive industry include:

  • General Motors Acceptance Corporation (GMAC, which is now Ally Financial).
  • Chrysler Financial.
  • Toyota Financial Services.
  • Ford Motor Credit Company.
  • American Honda Finance.

Pros & Cons of Captive Finance Company Auto Loans


  • There's not much guesswork involved when working with captive finance companies; typically, you go into the deal knowing you'll get the standard car loan according to your credit risk (which is based on your credit history).
  • Often, captive finance companies don't need to borrow the money they lend; thus, they can offer lower car loan rates than other types of loan companies.
    • Captive finance companies can also offer better car loan rates to buyers with poor or average credit because there's a decreased risk in loaning money for their own products (the vehicles).
  • Unlike other types of lenders, such as banks and credit unions, captive finance companies provide both the loan and purchase processes in one convenient sitting.
    • With a bank or credit union, you must go back and forth between the dealership and lender to make a deal.


  • Generally, you don't get much, if any, face-to-face interaction. When you finance an auto loan through a dealership, bank, or credit union, you can sit down with a representative and hash out the deal; however, with a captive finance company, you're working with the company from a distance.
  • It's not as easy to negotiate car loan rates as it is with other types of lenders.
  • Because it's easier for captive finance companies to offer loans to buyers with poor credit, it's easier for buyers to agree to loans they can't reasonably afford.
  • A dealership salesperson working with captive finance companies can jack up car costs with unnecessary extras because they make commission on the vehicles they sell.
    • This could increase the car loan amount as well as the car loan rates.

Choosing a Captive Finance Company

Now that you're armed with the pros and cons of working with a captive finance company, it's easier to determine whether or not it's right for you.

However, there's one more tip to consider: Before you head to the dealership, visit other loan companies like your bank or credit union. Shop around with several lenders and see what kinds of car loan rates you can get. Once you have a few offers, then visit the dealership and see what the captive finance companies have to offer you.

Gathering car loan rates from all possible lenders, including captive finance companies, will help you find the best auto loan with the most reasonable car loan rates for you.

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