Special financing? Whatever is that? Well, it is how it sounds. Special financing is financing set up for individuals with ‘special’ credit. Special financing means higher interest rates, pre-set prices by the banks on vehicles, fees paid by the dealer, and sometimes required down payments.
That’s what special financing means to the banks and
the dealership. But what does it mean to the consumer? In the industry,
time and time again, special financing is explained as a way to
re-build one’s credit through the purchase of an auto loan. There was a
day and time, a long time ago, when the words "special" and "
financing" didn’t have any significance when paired together.
Now, however, times have changed and so have the way banks and financial institutions treat credit challenged individuals. A special finance customer may be faced with choosing between a limited selection of vehicles that fit the criteria set by the bank. Certain criteria may include how many miles the vehicle can have, how much the monthly payment can be, and even which vehicles you could choose based on how much the dealer had to pay for them.
Car lingo supports two types of customers: Prime and Sub-prime. Dealers and Financial institutions rely heavily on your FICO, or your credit score, to determine your rate. (You can research your own credit score by going to FreeCreditReport.com.) Your FICO also tells the dealership whether you are a Prime customer or a Sub-Prime customer. Your score may also determine how many stipulations the bank is going to require the dealer and the consumer to provide in order to extend credit. What are stipulations?
Briefly, stipulations are such items that include, but are not limited to: proof of income, phone bills, utility bills, personal references and sometimes even bankruptcy discharge papers. Consumers with better credit scores will most likely not have to bring in all, or sometimes any of these documents. So what does that mean?
Well, sometimes consumers may be self employed, or have had some time off during the year, and may not be able to prove the necessary amount in income to qualify for the bank programs. In that case, they had better hope that the bank doesn’t ‘stip’ for proof of income or else they are going to have to bring in tax returns, which almost always do not reflect true income of self employed individuals.
So what does this mean to you as a consumer? It means, stay on top of your credit file, and pay your bills in time. This will ensure you to get the best rate possible, little to no money out of pocket, and your selection of vehicles!! Know you credit score before you enter the dealership.
prepared to pay higher interest and therefore a higher monthly payment
if your score is below 600. If you have a lower FICO score, investigate
which dealers provide the most ‘special financing’ options. A dealer
that is not educated in special financing will send your application to
several banks that you may not even qualify for, thereby dropping your
Every time a banks looks at your credit, it puts an inquiry on your credit report. One dealer may send your application to so many banks, that it could drop your score up to 25 points. And sometimes those points could make the difference between driving and walking home.
Banks will compete for your business and a good special finance manager will know how to work the banks against each other to get you the best deal. Do your research. The money you could save is directly influenced by the amount of research you do.
Special Finance Manager
Jim Fresard Pontiac