Introduction To Special Finance

Special Finance

Have you had trouble sleeping lately? Been watching any “trash TV” or late-night infomercials? Then, without a doubt, you’ve been inundated with “Bad Credit Mania.” It seems like every time you turn your TV on; somebody is telling you that, regardless of how bad your credit may be, you can get approved for a loan, with no money down, for that beautiful high-line import sports car, or how about that beautiful luxury SUV. And payments that are so low, you hardly have made them. Just come on in, and they’ll send you home in the dream vehicle of your choice with no hassle.

If you’re an automobile dealer or manager, you wonder how people can actually believe all this nonsense. No money down financing for bad credit customers is just another fantasy. But the dealership down the street is constantly flooded with ups while your guys stand around drinking your coffee and littering your used car lot with their cigarette butts. Meanwhile, that other dealership seems to be busy all day and night…why they still have ups on the lot when you’re getting ready to close.


If this sounds like your dealership, then you probably never heard of Special Finance. Maybe you have, but you’ve also heard all the horror stories that go along with it. The “scuzzy “customers, their trashed trade-ins, bad down payment checks, and all the lies they tell to try and get approved for a loan. And the banks, oh the banks you have to deal with for these people. They take forever to fund a deal if, indeed, the deal gets funded at all. It seems like the only guy to make any money on these deals is your “repo-man,” if he can find these people and get your car back! Why would anyone in their right mind want to subject themselves to this kind of aggravation?

But what if I could show you that, by ignoring these customers, you effectively eliminate up to half the customers within a 30-mile radius of your dealership. Imagine that over 50% of the people living around your dealership suddenly pack up and move overnight. Would you even have built it there in the first place? Probably not, but why would you even think of excluding these folks from your dealership since you’re already there? Contrary to what you might think, this aspect of the business can be both profitable and clean, and these customers prove themselves time and again to be some of your most loyal customers ever. They regard you and your dealership as a friend who helped them out during some tough times and will refer friends and family with great vigor, especially those in the same circumstances. They will serve their vehicles at your service department and will take advantage of your body shop if you have one. They will come back repeatedly and continue to do business with your dealership for as long as you’ll let them. They are, without doubt, the best word-of-mouth advertising you can get!

So, who is your store in the grand scheme of dealerships? Do you openly embrace sub-prime customers and make this business your main objective? Do your people run for cover when a special finance customer hits the lot, knowing that your F&I department has no interest in these customers. Do you dabble on the outskirts of special finance, doing only those deals which require little effort?

Research shows that dealerships traditionally fall into one of four categories when it comes to Sub-prime or Special Finance (SFI). We like to call it “The Dealership Four Square”:

The Bold Dealership is just that. He’s known as the special finance king. All his advertising dollars go towards the sub-prime market, and you can pretty well surmise that anyone driving one of his cars probably has a credit problem. The dealership caters to sub-prime business, and as such, good credit customers may be reluctant to go there. If a 750 beacon walks in the door, he probably made a wrong turn!

The Enthusiastic Dealership is willing to do Special Finance but is typically not ready. There is no pro-active marketing for Special Finance. Thus the limited business is generated from lot traffic,” Get ME, Dones,” and primary F&I turn downs. The F& I Turndowns are typical when the Sales Desk has a strong deal on a vehicle and is delivered to the customer on the Sales Desk’s “OK to SPOT.” These deals have been shopped to every primary lender with no success. At this point (often two days later), the Special Finance Manager gets the deal and is left with the task of salvaging a deal that was never handled properly from the beginning. These stores see the potential for sub-prime but can’t figure out how the store down the street can deliver all their turn downs. They tend to take only the easy deals, and those that require some work usually get let out after the initial round of rejections.

The Necessary Dealership does Special Finance, but not consciously. The F&I manager knows something about sub-prime and can get a deal approved with some effort. His pay plan typically does not compensate him sub-prime, so he pays little attention to it. His attitude regarding special finance is that these customers don’t deserve a loan, but when he gets them approved, he is the BEST! This dealership is concerned with the image that Sub Prime can conjure up. This dealership is not interested in being known as a “Sub Prime Dealer” and does not want to jeopardize its current customer relationships. This dealer is only interested in Subprime if it could be done with only the banker knowing!

The Unwilling Dealership has no desire to be in the sub-prime business. This store is usually one of the top dealerships in the market, selling hundreds of vehicles a month. Most of his financing goes through his captive source, and they tend to buy so deep, many of what would be considered sub-prime at another store get done as primary in this store. Management’s philosophy regarding sub-prime is that it’s simply not worth the headaches, and the few extra deals a month do not make up for the previous nightmares that this store may have

What category does your dealership fall into?


You may already be in the Special Finance business and don’t even know it. If your F&I department is that good, you don’t hear a lot of complaining about the deal that couldn’t get bought. While it’s highly unlikely that your staff closes every customer that walks on your lot, the odds are that you are probably selling some of these sub-prime customers to your primary sources. But we live in a world of maximums and super sizes, so why not have both on these deals?

We know that over 50% of the population surrounding your dealership has some kind of credit impairment. Why would you want to exclude that many potential buyers from your dealership? Even if you’re a mega-dealer doing hundreds of units a month, wouldn’t it be nice to have another 25 to 50 sales on top of what you’re already doing? Keep in mind that we’re not talking about abandoning the business you already have but expanding it.

Remember, special finance customers, aren’t just the ones who sit home and watch Jerry Springer all day, trying to figure out where they can cash their next welfare or unemployment check. They may be doctors or lawyers or any other professional who has just had a bit of bad luck. As the saying goes, “Bad things happen to good people.” These customers want to do business with a professional, not some fly-by-night operation they pass along the way. Additionally, these customers will provide additional business for your parts, service, and body shop. And the referral business they can bring could be well worth it within the long run.

Remember, when everyone else is saying how bad business is, the quality of the customers coming into your dealership hasn’t changed; it’s the circumstances these people face that are different.

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1.The subprime mortgage crisis affects your subprime customers the most!. Many of them are “victims” of these subprime mortgage loans and are unsure of their mortgage payment when their rate goes up!
2.These same people that we’re banking on the equity in their home continuing to rise, and many took out equity lines or second mortgages and now don’t have the equity left to support these loans.
3.The housing market is down, and many people who work in it feel pain. The construction worker, carpenter, framer, electrician, plumber, etc., all were riding high when the new housing market was in full swing. If they are still employed, many of them have gone from 70-80 hour weeks doing big overtime to 40 or fewer hours a week with no overtime. Income is way off, so many of them don’t have down payments available.