Special Finance

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DEFINITION

A sector of the auto lending industry for borrowers with a limited or tainted credit history. Special financing in the auto finance industry is risk based, which means that the terms of the loan are set so that the expected returns to the lender/investor are great enough to cover the risk of default by the borrower. Special finance loans typically carry a higher interest rate than is available to borrowers with a clean credit history.

INVESTOPEDIA EXPLAINS

Special finance auto loans should be shopped around by a borrower. Like any other product, auto financing is competitive. The best way a consumer can ensure that he or she is getting a competitive market price (rate) on a special finance loan is to shop around.


RELATED TERMS
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  2. Bad Debt

    A debt that is not collectible and therefore worthless to the creditor. This ...
  3. Credit Risk

    The risk of loss of principal or loss of a financial reward stemming from a ...
  4. Impaired Credit

    A deterioration in the creditworthiness of an individual or entity. This is ...
  5. Default Risk

    The event in which companies or individuals will be unable to make the required ...
  6. Subprime

    A classification of borrowers with a tarnished or limited credit history. Lenders ...
  7. After-Acquired Collateral

    Collateral for a loan obtained after the borrower has already entered into a ...
  8. Lease Balance

    The amount of money that a customer owes under the terms of a vehicle lease ...
  9. Segregated Disclosures

    A series of lender declarations that are required by law to be grouped separately ...
  10. Capitalized Cost Reduction

    Any upfront payment that reduces the cost of financing. Capitalized cost reduction ...
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