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Special Finance Can be a Profitable Market Segment

The special-finance market — offering car loans to customers with impaired credit — is growing, as more dealers realize the profit it can generate. But to benefit from the subprime market, you need to control risk and avoid damaging your dealership’s reputation.

Less risky than you may think

Lenders appreciate car loans because, even when made to customers with impaired credit, they offer big-ticket items with limited risk. Instead of gambling their entire investment on unsecured personal loans, lenders making car loans can take possession of the vehicles if the borrowers default.

Also, even though consumers who are suffering from bad credit or bankruptcy may have no other option than special finance, they may not be as risky as they appear on paper. Special-finance lenders place less emphasis on credit history and more on the consumer’s ability to pay in the future. A poor credit score may not accurately reflect payment ability, because bankruptcy and other credit problems can affect credit scores long after the consumer has recovered financially.

Protecting your reputation

Still, you may have valid concerns about entering this market. Above all, will your reputation be tarnished because the public believes that special-finance customers are being charged exorbitant interest rates?

Although interest rates of up to 25% may at first glance appear excessive, compare them to the higher auto insurance premiums charged to people who have had car accidents. Both types of rates are based on the risk the lenders and the insurance companies are accepting.

In fact, special finance provides a solution for customers with poor credit ratings. The higher interest rates can be seen as the price of re-establishing credit.

Some special-finance lenders offer renewal loyalty programs, allowing customers who make a certain number of payments on time to qualify for a prime or near-prime interest rate on another loan. This gives the customer an opportunity to later purchase a better vehicle with a lower interest rate.


Most dealers wouldn’t want to venture into administrating and servicing this type of special-finance or “Buy Here – Pay Here” program because of the intense nature of managing this type of activity. There are professional groups who offer dealers solutions to this “nightmare” and run their business just like you would. We’d suggest that if the “Special Finance” business opportunity is attractive, you should also consider a professional affiliation with a group that manages and handles this type of business.

Benefits for all

Although dealers have real concerns about entering the special-finance market, it can benefit both dealers and customers if done right. Dealerships profit and build up a customer base. And consumers who have had financial problems are offered a way to rebuild their credit and qualify for lower interest rates in the future.

Frankeberger Vausher + Company, CPAs… is a full service CPA firm whose partners have collectively served the dealership industry for over 35 years. We provide a full compendium of professional services including traditional taxation and financial statement preparation as well as strategic consulting for dealers in such areas as: Financial and Operating Controls, all activities for Buy/Sell transactions, valuation requirements, estate planning assistance as well as being Expert Witnesses in Litigation Matters. In addition, we provide expertise in Forensic, Fraud and Embezzlement situations as that need may unfortunately arise.

Please contact Dennis Frankeberger at 909-597-1100 to discuss this article or any other dealership issue that may be of interest to you. Email address dennisf@FVCPAS.com