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History of Loans Banking and Credit -- Mr. Yates. When?. No one can say for certain where the history of loans began It's likely that people have been practicing lending and borrowing for as long as there has been a concept of ownership. Greeks and Romans.
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When? • No one can say for certain where the history of loans began • It's likely that people have been practicing lending and borrowing for as long as there has been a concept of ownership
Greeks and Romans • The history of loans can be documented at least several thousand years back • Forms of lending were evident in ancient Greek and Roman times, and monetary loans were even mentioned in the Christian bible.
Indentured • One of the early forms of lending that should be explored in the history of loans is the indentured loan (also known as indentured servitude.) • Initially practiced in the Middle Ages and through the 19th century by land owners and the wealthy, indentured servitude allowed poor individuals to borrow the money needed for major expenses such as travel and real estate.
U.S. Worker indenturees • In the sixteenth and seventeenth centuries, Great Britain and the German principalities had a surplus of labor. • There were more skilled artisans, domestics, and general laborers than there were jobs. • Moreover, a substantial number of rural workers who farmed as tenants or as small landowners found that they could not make an adequate living. • These individuals saw an opportunity in the American colonies but lacked the funds to pay their passage.
Agriculture and Industry • The colonies, in contrast, suffered from a shortage of laborers. • There was land to clear and cultivate, timber to harvest, agriculture products to be processed, and goods to be manufactured, as well as a thriving fishing industry.
Indenturees & the U.S. • Definition: Work performed under contracts that obligate indenturees to work for stated periods of time in exchange for transportation, lodging, food, and clothing • Significance: During the colonial period and into the eighteenth century, the system of indentured labor provided a workforce for labor-intensive businesses such as tobacco farming. • It also provided a means for individuals, many of whom were already skilled tradesmen but who lacked money, to pay their ship’s passage to the United States. • These workers played an important role in the building of a prosperous economy.
Servitude • Once the land owner or wealthy individual had secured a ship passage or piece of real estate for an individual, that individual would then have to work off their debt over the course of several years • Unfortunately, many times the land owner was very dishonest and would greatly inflate the debt or would continue to add provisions to the debt long after it had been repaid.
Indentured --- Slavery? • Indentured servants often had very few rights, and were seen by some wealthy individuals as a way to maintain slave labor long after slavery had been abolished in both Europe and the United States.
Banks… • Luckily, legitimate banks were developing even as indentured servitude was rampant. • Individuals known as moneylenders played an important part in the history of loans • In fact, it's from the Italian moneylenders of the Middle Ages that we get both the English words “bank” and “bankrupt” that we use today.
Italian moneylenders would set up benches in the local marketplace (with the word for bench being “banca,” from which we eventually derived the word “bank”). • The moneylenders would charge interest on their loans at a rate that they set, and would sometimes be quite successful and become very wealthy.
What do cars have to do with it? • After the first automobile was invented by the McLaughlin-Buick company, and more famously mass produced by Henry Ford, car registration grew in popularity during the early 20th century. • But by 1910, there were still only 6,000 cars on the roads of America, and horses remained the most popular mode of transport.
Cash – to financing • In the early days of the industry dealers had to pay cash for their stock, which meant they could only buy a few cars at a time. • As mass production took hold, the assembly line was capable of producing more cars than dealers could afford. • The only way round this was for the manufacturers to offer finance to dealers, who in turn could offer finance to their customers.
Installments • This was the beginning of the hire purchase age, and everything from property to clothes could be paid off in installments to suit the consumer.
Billy Durant • General Motors Acceptance Corporation (GMAC), the first automobile-specific loans company. • In 1919, GMAC branches opened in Detroit, Chicago, New York, San Francisco and Toronto. • In 1920 they expanded to Britain, and by 1928, they had 4 million contracts under their belt. • By the mid-eighties, GMAC were achieving annual earnings in excess of $1billion, and they now operate in 41 countries.
GMAC • As the automobile industry expanded, so did the business of car loans. GMAC’s success in the car loan business was increasing rapidly. • Check out the number of retail contracts they wrote, and how much they earned: • 1958: 40 million contracts. • 1977: 75 million contracts. • 1985: 100 million and earnings of $1 billion. • 2000: $1.6 billion in earnings. • 2001: $1.8 billion in earnings. • 2002: Nearly $1.9 billion in earnings.
GMAC lead the way • Since its inception, GMAC has provided more than $1 trillion of financing for 150 million cars and trucks around the world. • They’re now in 41 countries. Does that give you some idea of the massive size of the car loan industry today?
Auto Financing • GMAC definitely led the way in the car loan business but, of course, the other major manufacturers recognized the profitability and entered the market. • These companies are known as “captive finance companies”; that’s simply a term to signify that the lending company is wholly owned by the automobile manufacturer. • Examples, other than GMAC, are NMAC (Nissan Motor Acceptance Corporation), Ford Credit (Ford Motor Credit Company), Chrysler Credit (Daimler-Chrysler).
Get on the bandwagon • If there’s money to be made…
sources • http://www.thehistoryof.net/history-of-car-loans.html
