Special financing is a term used to represent the loan options for those who are with a bad credit rating. It could also cover those who filed bankruptcy, repossession, and those with impaired credit history. It is also mostly exclusive to the auto industry.
Special financing is primarily risk-based, which means the terms of the loan are set in such a way for the lender to cover all the risks of defaulting by the borrower.
So, special finance loans may typically have a higher rate of interest compared to those available to those with clean credit histories.
Understanding Special Finance Components
Consumers who are suffering from bankruptcy, repossession of a previous vehicle, or any other form of credit impairment cannot get qualified for the traditional financing.
Lenders reviewing the credit history of the borrowers will note the incidents as collection notices, late payments, and prior defaults to show as pointers to credit risk.
Special Finance in the auto industry
Some auto dealers may offer in-house financing options and some others may offer special finance loans, which they make as a part of their marketing and advertising campaigns.
This will include running some ad campaigns which claim that the dealers may work with the consumers in spite of their credit history or if they have any money they want to put as the deposit. The special finance offers are a great way to attract a number of customers to the dealership.
Many of the new financiers also adopt this as a way to attract more consumers and many vehicle dealers also find it a good way to attract more customers to the dealership. By showing this as a special offer, they welcome the customers to apply for financing for purchasing a new vehicle from their dealership.
By showing the new consumers they are welcoming to apply for financing regardless of the credit history, the potential of sales largely increase. When it comes to an auto dealership, they could be focusing on clearing as much record as possible. Usage of special finance can be an ideal way for the dealers to improve their sales flow, particularly during the lean sales periods.
Special Finance auto loans
Special finance loans can be shopped around by borrowers with bad credit. Like any other financial products, auto finance is also very competitive.
The best possible way for someone to ensure that he or she is getting a very competitive market pricing is to consider as many options as possible and get hold of the best possible deals.
There are a large number of companies in the auto finance sector now that are open to accepting applications for subprime loans. So, even when your credit score is poor, there can be lenders who can offer you finance and help you go on.
Keep in mind that the auto loans for those who are with bad credits may come with a higher APR (annual percentage rate) than others, which is to balance the risk to the lenders.
On getting approval, based on the loan amount and the type of vehicles you want to buy, buyers can also opt for used vehicles also instead of new.
The major lending options for car buyers seeking special financial options include credit unions, banks, dealership loans, and also online financiers offering financial products like six months of special financing.
Dealerships are the best places to purchase a car and also arrange for finance at the same time. Most of the time, the executives of financing firms will be present at the dealerships whom you can contact in order to check their options and do some negotiations to get the best deals.
However, you need to differentiate between the ‘pay here,’ ‘buy here’ types of dealerships, which don’t use any third party financing and also the auto dealerships clubbed with third parties, etc.
The ‘buy here,’ ‘pay here’ type dealers will be offering in-house financing, which may also tend to charge a higher interest rate than the other options.
Even when a person has no or poor credit, it is worth to seek if there is an option for a credit union, bank, or other lenders who are willing to approve a loan for you. This is what the experts of the Consumer Financial Protection Bureau also advise.
Tips on Availing Special Financing to Purchase a Car
1. Check the Credit Scores
Always check your credit reports to see your historical performance. Based on this, you can identify the current status of your credit score and the scope of repairing it if it is bad.
This is also essential to check if there is any error, which limits your access to further credit and disputes those if needed.
2. Work out your Affordable Sum
You can use any of the good auto loan calculators available online in order to estimate how much money you can spend on a vehicle.
One may also take in accounts as to what down payment can be affordable and the trade-in value of the vehicle into consideration. Based on your income or another source of revenue, it is also ideal for assessing how much is affordable in terms of monthly installments.
3. Choose Appropriate Lender for Special Finance
If your credit score is not reassuring, then look for a lender who accepts applications from consumers with bad credit. To your surprise, one can find many such providers nowadays.
Even the general lenders sometimes put forth special finance options for the concerned category of borrowers as a part of their promotional campaigns. Consider the interest rates of various providers to identify which could be your best choice.
4. Get a Co-Applicant
If you find it a trouble to get individual special finance approved due to bad credit, then consider submitting a joint application with someone who has a better score.
Remember, the co-borrowers also will have equal rights on the vehicle brought through such financing, but they will also have the shared obligation to repay the loan, which is a great way to reduce the bad credit risk and get better interest rates.
The best avenue to check for special finance offers is online websites of financiers and banks to see what product they advertise. It is also a good idea to inquire with the vehicle dealers to find whom they are dealing with in terms of finance to check out their options.