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. 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. ...
  2. Personal Finance

    Personal Loans: Consider These Alternative Lenders

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

    Subprime Debacle: Lenders See Rising Losses (SC)

    The delinquency rate on auto loans has increased every month since February, a sign that rising losses may be ahead
  4. Personal Finance

    Subprime Auto Loans: What Borrowers Should Know

    Are subprime auto loans a disaster waiting to happen?
  5. Small Business

    What is Equity Financing?

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

    6 Steps to Getting a Car Loan With Bad Credit

    Having bad credit does not mean you can't get a car loan. Follow these steps to improve your chances of getting a loan with terms you can live with.
  7. Financial Advisor

    The Best Way To Borrow

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

    Personal Loans vs. Car Loans

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

    What Does Finance Cover?

    Finance is the study of banking, leverage, credit, capital markets, money and investments, along with how they are used by individuals and companies.
  10. 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. ...
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 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 >>
  5. 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 >>
  6. Are secured personal loans better than unsecured loans?

    Read about the differences between secured loans and unsecured loans and how they are used. Learn about forms of collateral ... Read Answer >>
Trading Center