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In my last post I wrote about what pops into an auto dealer's head when you say "Special Finance." For some car dealers, this category of financing is too troublesome to bother with. For others, this is all they do.
Let's take a closer look at how putting together a financing deal for a Special Finance or subprime customer differs from financing for a prime consumer.
I sat down with one of our dealer relationship managers, Nicole Diamond, to get her take on the differences. For those of you who don't know her, before she came to us she put in 16+ years in finance, including supporting car dealers with prime and subprime lending for SunTrust Bank. So she knows the deal.
What it really boils down to is risk - for the dealership and for the bank. A dealer has to look at a combination of factors when reviewing a special finance loan application in order to ensure that it's a good deal for them, including:
Underlying all of that analysis is the people element - dealers have to have good relationships with their lenders in order to get some of these deals done. Lenders have requirements for risk that they have to meet, and they manage their portfolios based on serving their dealer client base and limiting their exposure on the downside. Only a certain percentage of their lienholdings can be outside of the Prime category of credit.
By building a good relationship with their lender based on trust, dealers can get their financing packages turned around more quickly. Dealers that have earned a lender's trust by bringing them good customers also enjoy a little more flexibility when it comes to getting their Special Finance deals done.
This element is key in the Special Finance world, which is a far cry from the cut-and-dried Prime lending world.
I've just scratched the surface on this topic, and you can already see how complex this kind of lending is. And having a kind of lending support system in place is crucial to running a successful Special Finance department.
Continuing on in this series, we'll look at some of the other aspects necessary to working in Special Finance. Watch this space.
In the meantime, feel free to hit us up with any questions via Twitter at @carloanco. Look forward to hearing from you.