fixed term investments and finance companies
Written by Robert A. Stewart
Finance companies offer higher interest rates to their lender’s only because they charge higher interest to their borrower’s than the high street banks will do. This is because the customer’s of finance companies are usually those that the banks will not lend to because they are deemed to be at a higher risk of defaulting on their loans. These are the people that borrow for consumable goods that lose value and in almost all cases, the liability (the amount owing) is more than the value of the goods acquired. This is particularly so for motor vehicles and house hold appliances. Some of these companies will lend to property developers and this does not mean that since they finance company has an asset such as property to fall back on if the borrower defaults on the loan because there are cases where the property developer has gone into liquidation bring the finance company down with it.
During the Global Financial Crisis of 2008, many finance companies collapsed losing their investors millions of dollars out of pocket. The sad part is that many retired folk or those approaching retirement age lose their entire life savings after investing everything they had into the one company. These people broke of the most important rules of investing in that the placed all of their financial eggs in the one basket. I don’t know if any of them received financial advice or not but at the end of the day it is the responsibility of each individual to be a steward of their own resources and to educate themselves on financial matters.
So what are the main rules of investing with finance companies?
1.Do your homework first! This involves do an internet research, reading the financial section of the newspapers, and obtain their prospectus by writing, phoning, or emailing them for details.
2.Diversify, that means don’t put all of your money in one basket but spread your investments around several companies.
3.Invest in the larger companies because they will less likely to be affected by one major lender defaulting on their loan
4.Invest in companies that have stood the test of time and have been around the longest because they will have systems in place to deal with economic down turns as a result of being experienced in dealing with recessions.
Investing in finance companies can give you a good return on your money if you play your cards right but they should only feature as a minor part of your financial oportfolio and not all of it as the higher interest, as enticing as they may be, do not always compensate for the level of risk being taken by investors because the finance companies are out to make money, not friends and will pay as little interest as they are able to in order to temp investors but at the same time charge as much interest to their borrower’s in order to make a decent profit.
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