Captive Finance Company

AAA

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.

RELATED TERMS
  1. Captive Insurance Company

    A company that provides risk-mitigation services for its parent ...
  2. Subsidiary

    A company whose voting stock is more than 50% controlled by another ...
  3. Bailout

    A situation in which a business, individual or government offers ...
  4. Bank

    A financial institution licensed as a receiver of deposits. There ...
  5. Wholly Owned Subsidiary

    A company whose common stock is 100% owned by another company, ...
  6. Finance

    The science that describes the management, creation and study ...
Related Articles
  1. Conglomerates: Cash Cows Or Corporate ...
    Investing Basics

    Conglomerates: Cash Cows Or Corporate ...

  2. The Importance Of Segment Data
    Active Trading

    The Importance Of Segment Data

  3. Use Breakup Value To Find Undervalued ...
    Investing

    Use Breakup Value To Find Undervalued ...

  4. Sneaky Subsidiary Tricks Can Cloud Financials
    Investing Basics

    Sneaky Subsidiary Tricks Can Cloud Financials

Hot Definitions
  1. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  2. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  3. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  4. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  5. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
  6. Parity Price

    When the price of an asset is directly linked to another price. Examples of parity price are: 1. Convertibles - the price ...
Trading Center