Special Finance

DEFINITION of 'Special Finance'

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.

BREAKING DOWN 'Special Finance'

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
  1. Second Chance Loan

    A type of loan associated with subprime lending and borrowers ...
  2. Asset Financing

    Using balance sheet assets (such as accounts receivable, short-term ...
  3. Closed-End Credit

    A loan or extension of credit in which the proceeds are dispersed ...
  4. Financing Squeeze

    A situation in which would-be borrowers find it difficult to ...
  5. Subprime Lender

    A type of lender that specializes in lending to borrowers with ...
  6. Amount Financed

    The actual amount of credit made available to a borrower in a ...
Related Articles
  1. Personal Finance

    Auto Loans the Next Subprime: Jamie Dimon (JPM)

    JP Morgan Chase CEO Jamie Dimon issues a prescient warning over stress in the auto loan market to investors in New York.
  2. Investing

    What is Debt Financing?

    When a company needs to pay for something, it can pay with cash, or it may finance the purchase. Financing means that it gets the money from other businesses or sources, in return for obligations. ...
  3. Markets

    Small Business Loan Vs Line of Credit: How They Differ

    Understand the differences between a small business loan and a line of credit, and learn some of the most appropriate uses for each form of financing.
  4. Financial Advisor

    Personal Loans: Consider These Alternative Lenders

    Looking for an alternative source of financing for a personal loan? Take a look at these companies.
  5. Markets

    Subprime Auto Loans: What Borrowers Should Know

    Are subprime auto loans a disaster waiting to happen?
  6. Retirement

    The Best Way To Borrow

    There are many avenues from which to drum up funding. Find out the pros and cons of each.
  7. Personal Finance

    The Basics Of Lines Of Credit

    Lines of credit are potentially useful hybrids of credit cards and normal loans. Learn how a line of credit can help (and hurt) your finances, and how to find the best one to suit your needs. ...
  8. Markets

    What is Equity Financing?

    Companies that are short on cash may need financing to pay for short-term needs or long-term capital expenditures.
  9. Personal Finance

    Personal Loans vs. Car Loans

    How to tell whether a personal loan or a car loan is better for you.
  10. Investing

    Understanding Credit Risk

    Credit risk arises whenever a borrower is expecting to use future cash flows to pay a current debt.
RELATED FAQS
  1. Why do high profiting sales mitigate credit risk?

    Learn more about credit risk in loaning to individuals and businesses. Understand how credit risk is determined and the impact ... Read Answer >>
  2. What are the typical requirements to qualify for closed end credit?

    Learn what closed-end credit is, and the various requirements that borrowers must meet in order to obtain a closed-end credit ... Read Answer >>
  3. How does a credit crunch occur?

    A credit crunch occurs when there is a lack of funds available in the credit market, making it difficult for borrowers to ... Read Answer >>
  4. What is the difference between the Five Cs of Credit and credit rating?

    Learn the difference between the five C's of credit and credit rating and how they are used together by banks and finance ... Read Answer >>
  5. What special powers does the government have to collect student loans?

    Contact student loan companies before student loans default, as the government has the power to get its money. Prior to default, ... Read Answer >>
  6. What economic indicators are important for investing in the automotive sector?

    Discover the most important economic indicators when investing in the automotive sector: auto sales, unemployment and consumer ... Read Answer >>
Trading Center