Special financing is an umbrella term that describes auto loans for borrowers with bad credit. Not everyone needs special financing, but if you’ve been turned down for a car loan because of a lower credit score, then special financing may be for you.
Special Financing and Poor Credit
When your credit score has seen better days, special financing may be the solution. Special financing refers to auto financing that’s made for borrowers with credit challenges.
We can’t say definitively who exactly special financing is made for, but in general, if you’ve got questionable credit, it may be for you. Many traditional auto lenders tend to prefer borrowers with a FICO credit score above 660. Any lower than that, and you’re likely to be called a bad credit borrower, or a subprime borrower.
A few credit circumstances that may create the need for special financing on a vehicle include:
- Habitual bad credit (due to multiple negative marks)
- Situational bad credit (due to unexpected life events)
- No credit history
- Past repossession or voluntary repossession
- Past loan default
The above situations are some of the most common bad credit causes, and just one of the situations can create less than perfect credit.
But even with a poor credit score or spotty credit history, there are special financing dealerships you can seek out for a car loan.
Is Special Financing Different?
Special financing differs from the usual direct auto loan because special financing is done somewhat backward.
What we mean by this is that you first apply for a car loan, then choose a vehicle that fits your budget and the maximum car payment you're approved for. With a direct auto loan, you usually pick out a car first then ask for financing on that specific vehicle. But with special financing, the lender needs to first see if you’ve got the chops to handle an auto loan based on your individual financial and overall stability.
Applying for a special finance auto loan typically goes like this:
- Find a special finance dealership that’s signed up with subprime lenders.
- Apply for financing with the help of the special finance manager, who sends your information and application to their subprime lending partner(s).
- The subprime lender determines your eligibility.
- If approved, the special finance manager receives a payment call that outlines your max car payment.
- Choose a vehicle with a dealer that fits your max car payment, the lender’s specifications, and your budget.
- Complete purchase paperwork and financing, then take delivery!
Before you choose a specific make or model, the first step includes finding a dealership that’s signed up with subprime lenders and then meeting their requirements.
Typical Special Financing Requirements
Meeting the requirements of a subprime lender means proving you’ve got the stability, ability, and willingness to repay an auto loan. This means proving you have income, a stable financial situation, and a down payment.
Here are the common requirements you can prepare for:
- Down payment – Having poor credit means putting some cash down in nearly every case. Expect to need at least $1,000 or 10% of the vehicle’s selling price in cash or trade-in equity.
- Income – Most subprime lenders require a minimum monthly income of around $1,500 to $2,500, before taxes. This requirement needs to be met with a single source of income.
- Debt to income ratio – Subprime lenders look at your income compared to your existing loans and obligations. Most require that no more than 45% to 50% of your income is being eaten up by current expenses, which assures that you have the available income to repay the loan.
- Work history – Expect a subprime lender to examine your past work history and require that you’ve been at your current job for around six months to a year.
- Proof of permanent residence – The longer you’ve lived in the same area or residence, the more likely you are to be approved for special financing. Most subprime lenders require that you’ve lived at the same address for around one year.
- Proof of working phone – Subprime lenders need a way to contact you. Proving you have a working phone usually involves providing a recent contract cell phone bill or landline bill.
- Personal references – Lenders typically require a few personal references, and in special financing, you may need around five to eight. References can’t share your address, and you typically need to provide their names, addresses, and contact information.
Your individual situation may require less or more documents, but generally, these are the minimum requirements to be eligible for special financing.
Get Connected to a Special Finance Dealership
Having your documents and understanding the special financing process are great first steps – finding a special finance dealership can be a hassle though. But here at The Car Connection, we’ve got the connections to help you get the vehicle you need.
Over the last 20 years, we’ve built a nationwide network of dealers that are signed up with subprime lenders. To get matched to a special finance dealership in your local area – at no cost or obligation – complete our auto loan request form.