Captive Finance Company

Definition of 'Captive Finance Company'


A subsidiary whose purpose is to provide financing to customers buying the parent company's product. Captive finance companies can range in size from mid-sized entities to giant firms, depending on the size of the parent company. Their range of services can also vary widely, from basic card services to full-scale banking. A captive finance company can be a source of significant profits for the parent organization.

Investopedia explains 'Captive Finance Company'


A captive finance company is usually wholly owned by the parent organization. The best-known examples of such companies are the giant subsidiaries of the "Big Three" automakers, and the store card operations of large retailers such as Wal-Mart, Target and Sears.

Due to the size and scale of their operations, the captive finance companies of the Big Three car manufacturers: General Motors Acceptance Corporation (GMAC), Chrysler Financial and Ford Motor Credit Company – are arguably almost as well-known as their parent companies. Note that subsequent to the bankruptcy of General Motors in 2009, GMAC underwent a name change to Ally Bank and rebranded as Ally Financial in 2010.


Filed Under:

comments powered by Disqus
Hot Definitions
  1. Family Limited Partnership - FLP

    A type of partnership designed to centralize family business or investment accounts. FLPs pool together a family's assets into one single family-owned business partnership that family members own shares of. FLPs are frequently used as an estate tax minimization strategy, as shares in the FLP can be transferred between generations, at lower taxation rates than would be applied to the partnership's holdings.
  2. Yield Burning

    The illegal practice of underwriters marking up the prices on bonds for the purpose of reducing the yield on the bond. This practice, referred to as "burning the yield," is done after the bond is placed in escrow for an investor who is awaiting repayment.
  3. Marginal Analysis

    An examination of the additional benefits of an activity compared to the additional costs of that activity. Companies use marginal analysis as a decision-making tool to help them maximize their profits. Individuals unconsciously use marginal analysis to make a host of everyday decisions. Marginal analysis is also widely used in microeconomics when analyzing how a complex system is affected by marginal manipulation of its comprising variables.
  4. Treasury Inflation Protected Securities - TIPS

    A treasury security that is indexed to inflation in order to protect investors from the negative effects of inflation. TIPS are considered an extremely low-risk investment since they are backed by the U.S. government and since their par value rises with inflation, as measured by the Consumer Price Index, while their interest rate remains fixed.
  5. Gilt-Edged Switching

    The selling and repurchasing of certain high-grade stocks or bonds to capture profits. Gilt-edged switching involves gilt-edged security, which can be high-grade stock or bond issued by a financially stable company such as the Blue Chip companies or by certain governments.
  6. Master Limited Partnership - MLP

    A type of limited partnership that is publicly traded. There are two types of partners in this type of partnership: The limited partner is the person or group that provides the capital to the MLP and receives periodic income distributions from the MLP's cash flow, whereas the general partner is the party responsible for managing the MLP's affairs and receives compensation that is linked to the performance of the venture.
Trading Center