If the finance company is very sound and has a large net worth in relation to debts a subordinated note may not be a bad risk, since all of the capital has to be lost before you lose your money. It must be remembered, however, that the banks have the right to be paid off before you are paid off. The question comes to mind as to why short term notes of finance companies are stressed in this chapter rather than short term notes of manufacturers and mercantile establishments. The answer lies, to a great extent, in the liquidity of a finance company. Every month the finance company receives not only interest on its money but a substantial return of its capital. The person who buys a car and finances it over three years makes monthly payments which include not only interest on the money but a portion of the principal as well, so that over the three year period the entire sum of money lent by the finance company to the purchaser of the car is repaid in full.


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