What Is Special Finance?

The definition of subprime or special finance (SFI) can vary greatly from dealer to dealer. In general, Special Finance is defined as the ability to provide loans for customers who do not normally get to define in a position to finance a vehicle through your regular or primary lenders. Typically, these customers have either a limited credit file or credit issues, making them undesirable primary lender. Let us briefly look at the most common problems.

Credit Score: Many lenders use credit scores to Special Finance to define candidate. In general, the banks look at a value below 620 as Sub-Prime or Special Finance area. While this is not a fixed rule, it gives us a starting point to work from. Many lenders use different criteria together with the credit score of an applicant to determine the credit-worthiness. A recent collection or bankruptcy proceedings or a rash of late payments in recent months may lead to a high credit score is moot, and a limited credit bureau with any brand new accounts with low limits.

Repossessions: vehicles for one reason or another have been returned to the lender.

Voluntary repossessions are those that the customer returns the vehicle to the lender to avoid having to pay any recovery fees.

Involuntary repossessions show the lender had to send someone to get to physically see the vehicle.

Insolvency: Federal filings, which enable a consumer to judicial relief from their debts. Recent changes in bankruptcy law have to bring it harder.

Most borrowers fall into Chapter 13, also know as an employee plan (WEP). The debtor gives his money to a trustee, who keep a small portion to be able to live on. The remaining amount goes to his creditors the repayment of its accounts. As a rule, the court requires 3-5 years of payments, which begin in front of "discharge" the debtor of the outstanding debt and allows him all over again.

"Chapter 7" bankruptcies so that the court grant the debtor immediate relief from its debts. The court effectively removes all of the debtor's assets and a fresh start. New laws will be considered income to repay the judgment and ability, some of the debt prior to the granting of either motion.

Charge offs: Accounts, that the lender has at the point in the life of a debt if the lender has been trying to collect the debt occur, and it has depreciated. In general, these charged off accounts end as collections. A creditor will sell its charged-off accounts to a collection agency for pennies on the dollar, so that all funds, the collection agency receives money from the debtor is to be found.

Late payments: credit bureaus rate accounts paid on time as, 30, 60 or 90 days late. Apparently, 90 days is too late to significantly worse than 30 days and more often than not leads to the dreaded charged-off account.

First Time Buyers (FTB): These are usually candidates who generally a thin credit file or no credit history. Often these are young, newly hired college graduates who can qualify under a captive lender program. In many cases, these new immigrants to the U.S. customers, who may or may not have had his credit in their home language. Some can have a Taxpayer Identification Number (TIN) or W-7, instead of a Social Security Number. Whether these candidates fall into Special Finance is a matter of debate in many car dealerships, and we will tackle this problem a bit later.

Time in office: a limited credit file after it opened only a few small accounts for a short time. While these agencies have a relatively high score, the quality of accounts (local department stores or merchants, secured credit cards, accounts with minimal credit limits) to show it can make it difficult to assess for a lender, the character of the applicant. Usually these credit files some accounts opened for a short time with either a limited or no payment history.

Tax Liens: The Internal Revenue Service or a state or local tax authority shall have a lien on property owned by the debtor. If the debtor owns no real property, a lien is filed paper which allows the tax authority, any property acquired by the debtor may be attached.

Public Records: garnishments, judgments or other matters that are to be a member of the public record because of a court order. In the recordings here can be a bankruptcy or a state or federal tax lien.

Credit Counseling: often a precursor to bankruptcy, credit counseling is a process in which a debtor enters into a contract with a credit counselor or agree to an agency on a part-payment on the outstanding debt. Typically, these accounts are approaching the "critical mass" to a depreciation. The Agency has negotiated a repayment plan with the creditor and the debtor pays a monthly sum of money to the agency that pays the negotiated amount to each creditor. Most agencies require the customer to commit to extend its debt and simultaneously enrolled in the program, and do not consider the lender is usually a candidate who is actively enrolled in credit counseling.

Calculated: These are accounts in which the creditor believes the account is closed, but the debtor has paid less than the full liability to the credit. The creditor has agreed to accept what they are able to collect the repayment of the outstanding amounts were owed by the elimination of a portion of the interest on the account in order to collect as much as possible of the principle has been reduced. These accounts are generally seen by a lender such as just before a charge, and tend to indicate the applicant's inability to fulfill their obligations.

So, what business are you in?

This might sound like strange questions but they are very important to answer. The shop you can have with each customer that you work to change!

If properly managed, "sales" in the automotive industry can be divided into three divisions:

When working with clients, the "A" credit (Prime), you are indeed selling new and used vehicles.

When working with clients, the "BD" credit (Special Finance), you are first in the loan processing business.

When working with clients, the "EZ" credit (buy here pay here), you are in the collection business.

So what business are you in? Many traders make the mistake of believing they are only in the business of "selling new and used vehicles." The problem with this is that many of their customers fall into one of two categories of non-prime credit. If you are with clients who are working less than perfect credit, you must also see themselves in the "loan processing" and / or "collection" business.






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