Captive Finance Company

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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.

BREAKING DOWN '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.

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