Financing institutions are kind of like banks in that they lend money, but they’re a bit different, too. First of all, they tend to give different types of loans than banks do. Secondly, they get their funding by borrowing it themselves instead of through deposits. They earn a profit by charging you higher interest rates than they’re paying on their own loans.

If you’ve been to a car dealership, furniture store, jewelry store, or some other retailer that deals in expensive merchandise, odds are you’ve been offered a loan that you can use to purchase an item immediately and then pay off the loan in installments. The store itself isn’t offering you the loan; a type of financing institution called a sales financing institution works with the store to give you the loan. Sales financing institutions work with both individuals and companies making large purchases.

Personal credit institutions are companies that offer small personal loans and credit cards to individuals. Because they don’t have much to do with corporate finance — unless the personal credit institution itself is a corporation or you’re using your personal line of credit to invest in a corporation (in which case, as long as your returns exceed the interest you’re paying, then good for you) — I don’t cover this topic in detail here or elsewhere in this book.