Bank savings accounts can be used as collateral, which may allow a lower interest rate to be charged because repayment is almost guaranteed. Savings and Loan Associations are mostly in the home mortgage loan business. Credit unions loan money to members who have purchased credit union shares by making interest-earning deposits. Members may be groups of employees or members of a particular association. Free credit life insurance is usually included, which will pay off the loan should the borrower die.
Finance companies specialize in small loans to higher risk borrowers.
Rates are generally very high because high risk loans have a higher default rate. Since finance companies have no deposits, they must borrow from commercial banks to get money to lend, which is also added to the consumer's cost for finance company credit. Sales finance companies are business-related lenders that specialize in making purchase loans. The item being purchased is used as collateral. For example, a consumer might purchase a car through the manufacturer's finance company.