Car finance

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The subject of car finance comprises the different financial products which allows someone to acquire a car with any arrangement other than a single lump payment. The provision of car finance by a third party supplier allows the acquirer to provide for and raise the funds to compensate the initial owner, either a dealer or manufacturer.

Car finance is required by both private individuals and businesses. All types of finance products are available to either sector, however the market share by finance type for each sector differs, partly because business contract hire can provide tax and cashflow benefits to businesses.

Personal Car Finance[edit]

Personal Car Finance is a complete subsector of personal finance, with numerous different products available. These include a straightforward car loan, hire purchase, personal contract hire (car leasing) and Personal Contract Purchase. Therefore, car finance includes but is not limited to vehicle leasing. These different types of car finance are possible because of the high residual value of cars and the second hand car market, which enables other forms of financing beyond pure unsecured loans.[1]

Car finance arose because the price of cars was out of the reach of individual purchasers without borrowing the money. The funding for personal car finance is provided either by a retail bank or a specialist car financing company. Some car manufacturers own their own car financing arms, such as Ford with the Ford Motor Credit Company and General Motors with its GMAC Financial Services arm, which has now been renamed and rebranded as Ally Financial. Indirect auto lenders may set risk-based interest rate, or “buy rate,” that it conveys to auto dealers. Car companies may then allow their auto dealers to charge a higher interest rate when they finalize the deal with the consumer. This is typically called “dealer markup.” [2][3] Markups can generate compensation for dealers and some (those of GM's Ally and Honda) have been found to use the discretion to charge consumers different rates regardless of consumer creditworthiness.[2]

The funding supplier may retain ownership of the car during the period of the contract for certain types of financing. This interim ownership by a third party and subsequent leasing to the acquirer is far more typical for business assets than private ones, with the option of vehicle leasing being the major exception for private consumers.[citation needed] The finance is arranged either by the dealer which provides the car or by independent finance brokers who work on commission.[citation needed]

Spot delivery[edit]

Spot delivery (or spot financing) is a term used in the automobile industry that means delivery a vehicle to a buyer prior to financing on the vehicle being completed.[4] Spot delivery is used by dealerships on the weekend or after bank hours to be able to deliver a vehicle when a final approval cannot be received from a bank.[4] This method of delivery is regulated by many states in the U.S., and is sometimes referred to as a "Yo-Yo sale" or "Yo-Yo Financing."[5][6]

See also[edit]


  1. ^ "How Car Leasing Works - Explained - by".
  2. ^ a b "CFPB and DOJ Reach Resolution with Honda to Address Discriminatory Auto Loan Pricing - Consumer Financial Protection Bureau".
  3. ^ "Why Does the CFPB Want to Curb Auto Lenders' Discretion to Charge Higher or Lower Interest Rates?". 11 August 2015.
  4. ^ a b Ducey, Joe (20 June 2016). "Spot delivery is a bad idea when buying a car". ABC 15 Arizona. Retrieved 26 February 2018.
  5. ^ Dunn, Catherine (24 November 2014). "Yo-Yo Sales: For Subprime Borrowers, Car Contracts With Many Strings Attached". International Business Times. Retrieved 26 February 2018.
  6. ^ Carrns, Ann (18 April 2012). "Consumer Advocates Seek Halt to 'Yo-Yo' Car Financing". The New York Times. Retrieved 26 February 2018.

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