Car Buying Secrets

Special Financing - Better known as second chance credit

By: Roosevelt Gist

If you were an auto dealer owner and had an opportunity to increase your sales by 20% would you take advantage of that opportunity? Special financing is that profitable to auto dealers.

Each auto buyer, based on your credit report, is ranked either A, B, C or D. An "A" buyer is very credit worthy and the "D" buyer a bad credit risk. The economy, divorce, bankruptcy, loss of employment and numerous other factors created millions of "D" ranked car buyers. Estimates range as high as 30% of potential car buyers require special financing. This growing pool of potential car buyers left a void.

Special financing companies were formed to service the "D" customer. These companies were not banks. The cars available to the "D" customer were inexpensive used cars requiring very high down payments and at very high interest rates. Well over 22% in most cases.

Enormous profits are made and the market continues to grow. Banks and captive finance companies (manufacturer owned and funded) saw the profit potential of this market and now offer special financing to auto dealers. When the banks and captives entered the market it made special financing acceptable and now the "D" buyer is an important segment of auto financing and gives millions of car buyers a way to own a vehicle that they may not have been able to buy. The competition has reduced the special finance rates some what. But, you still will pay a higher rate than others and a larger down payment. You’re still considered a credit risk.

Some special finance programs have elevated their program to include new cars and two year old used cars. And, if you make your regular monthly car payments as agreed for the term of the loan you may be approved for your next car purchase. You are a valuable customer and dealers want your repeat business.

If you need special finance assistance let the salesperson know up front. He/she now has just as many sources to shop as with the regular lenders. The salesperson should treat you with the same respect and professionalism as shown any other car buyer. If they don’t leave the dealership.

The newspapers are full of luring ads talking about "bankruptcy - no problem"; " bad credit - no problem"; and, "no application refused." Stay with a reputable company. Preferably work with a franchised new car dealer or that dealer’s used car department. Do this because special finance companies come and go. Enormous amounts of money is needed to back these types of businesses and they need a quality repair facility.

Minority car buyers be on the alert because even some of the best known lenders are being sued for agressively over stating car loan interest rates to minority car buyers.

Don’t rush into any deal or accept just any vehicle. After all you’ll be driving that car for a while and it will be your hard earned money being used to make the payments.

Questions to ask the salesperson: Can I qualify for a new car? How long will I have to stay in this car before I can upgrade? Will you report my consistency of making payments to the credit bureau? What are the rates for each of your special finance lenders?  Which of your lenders have or is being sued for charging minorities higher interest rates?