Why does a finance company usually charge a higher interest rate than a bank?

1. Finance companies lend to individuals and businesses that cannot get credit elsewhere. 2. Borrowers in that position are more likely to default, so the lender carries extra risk. 3. To compensate for that extra risk, finance companies usually charge higher interest rates than banks. 4. The security pledged reduces the loss on a default but does not remove the risk, so the rate stays above bank rates. 5. Finance companies make short-term loans, so longer maturity is not the explanation. 6. They accept no deposits at all, which rules out any deposit insurance cost. _Source: OpenStax Introduction to Business (CC BY 4.0), Ch 15 "Understanding Money and Financial Institutions", section 15.3 U.S. Financial Institutions_