- Emma Parker
- March 25, 2021
Financial institutions are the pillars of the economy; they provide the food of money in some or other way to the citizens of a country. They manage funds to craft a better future for the people. As money has varied types of uses, it is the reason that financial institutions that manage them are of different types. This blog is about the different versions of those institutions and their function. Have a look because the information will be an enhancing chapter in your book on financial literacy.
In the uncertain times of today, it is necessary to first talk about the type of financial institution that saves you from all sorts of financial uncertainties.
Accidents, damage, natural calamity, death etc., are some of the incidents that can affect us thoroughly and negatively. We always want the security of our loved ones against such threats. In such conditions, insurance companies come forward.
- They nullify the risks by offering financial cover to individuals and business organizations. In an exchange on this cover, they take regular premiums from the customer.
- Health insurance, property insurance, travel insurance, machine (commercial) insurance, life insurance, and many more in the list. You should have all the relatable insurance policies according to the needs of your life.
As you can get the central idea by the term, yes, the commercial banks are designed to support the business world. It is not legally possible for a company owner to manage and operate its business finances through commercial institutions.
- These banks keep the deposited money by an individual or a company for commercial purposes. The money received from various transactions gets settled in the account. Similarly, payments made to a client or a partner can also go through the same account because only for business purposes.
- Commercial banks also offer loans for business purposes with varied lucrative offers for applicants with strong repaying capacity. For example – the guaranteed loans for businesses are destined to offer assurance of approval to the applicants who own good financial capacity.
Investment banks OR the General common banks
Yes, you can call them with two names, but the functions are the same as those of your bank, where you have a personal account. It is the same normal bank that people use to keep their money for varied purposes but specifically for personal use. It has nothing to do with commercial reasons.
- Deposit or withdraw money for varied personal finance purposes. The bank account becomes the base for many financial decisions and opportunities in life. For example – you show the bank statement to obtain a loan or prove your salary through the money credit details.
- The investment or common banks have become more versatile through banking apps that offer varied opportunities to the customers. Do fund transfer, make investment decisions through app only, take online bank statements or receive them on your e-mail, make part payments of loans etc. So many functions can be performed through the banking apps of investment banks.
Direct lender OR FinTech lending institutions
These are the online lending companies that offer loans for personal and commercial purposes. This category of lenders is an alternative to conventional financial institutions such as banks. When banks give more importance to credit history and credit score at one side, direct lending gives priority to the current financial circumstances.
- Direct lending institutions are basically destined to offer instant and timely money to people through varied types of loans. This sort of borrowing support is mainly popular in short-term loans such as personal loans, small business loans, no guarantor loans, bad credit loans etc.
- You can also call such lending firms specialized lenders because sometimes they serve specific financial conditions through their loans. For example, loans for people with bad credit are available for those who get a denial from a bank due to imperfect credit history.
The finance companies that work as the bridge between the provider and the receiver are known as the brokerage companies. These are also available online and work as the comparison site for people to compare various financial products and the best deals in the market.
- Suppose you want to get the best car insurance but do not know which one among the countless option is best for you. A broker firm will filter the best choices to choose and reach a conclusion making a final choice.
- The brokerage companies charge a fee in exchange for their services. They work as a bridge between the other finance companies and their customers. In exchange for this service, they charge a fee from the finance company or the customers. For example – a person who wants to look for the best deals on car loans may take the help of a broker company to compare varied lenders. However, the role of the brokerage firms is always controversial because people can now reach financial products on their own. They do not need to pay a heavy fee to the broker company.
Besides the companies mentioned above, financial consultancies are quite popular because they advise people to make better decisions. No, they are not the broker companies, which deal in a particular type of financial products. They suggest every aspect, where to invest, which saving plan is best for you, how to improve credit score etc. However, the financial advisor companies can also be product specific, but they do not sell the products of other financial companies like a broker firm. They ONLY suggest helping you make smart decisions.