How Long Does a Car Repossession Hurt Credit?

Credit is hurt by various negative actions. People who stop paying their bills or frequently send in late payments and those who have property seized because of defaults have trouble getting new loans and credit cards. These negative actions all show up on their credit reports. Car repossessions are an example of a harmful item.

Definition

Car loans are secured loans with a vehicle as collateral. The repayment term usually runs up to 60 months or sometimes longer. The Federal Trade Commission (FTC) explains that lenders write default terms in their contracts letting them seize the car if the borrower stops paying. This is called a repossession, and it can happen at any point in the term of the loan, even if they buyer stops sending money after several years of payments.

Effects

Car loans in good standing have a positive effect on credit. FICO, a major credit score company, explains that car loans are part of a person's overall credit payment history. This counts as 35 percent of the FICO score. A repossession is reflected on the credit reports compiled by TransUnion, Equifax and Experian, the three major credit reporting companies. A repossession knocks down the credit score and warns creditors that a major financial obligation was neglected. Car buyers who lose their vehicles to repossession may be denied for other credit or charged very high interest rates on new accounts.

Time Frame

The FTC warns that car repossessions appear on credit reports for seven years. The reporting period begins when the first payment was skipped. Banks, creditors, employers, insurers, landlords and others who pull credit reports to evaluate people for credit, housing, insurance and jobs all see the repossessed car for that entire time. The bureaus automatically purge it from their files when seven years ends.

Considerations

Car repossession is always bad to have on a credit record, but FICO explains that credit is rebuilt over time with positive activity like paying other bills promptly. Most creditors focus on recent accounts and activities and give less weight to old mistakes if current financial records are excellent. Pay all bills by the date due, do not open too many credit accounts, and maintain low balances to offset losing a vehicle in the past.

Prevention

Banks and other car loan providers have no legal obligation to work with financially troubled consumers, but the FTC explains that some will try to do so if the car owner calls and requests help. The lender might allow a late payment or alter the monthly due date so it fits in better with a person's paydays or budget. Bankruptcy stops repossession, according to the FTC, but it negatively impacts credit for three more years than a repossession, as it stays on credit reports for a decade.

Read More

What Does "Auto Refinance" Mean?

To refinance an auto, you must apply to a different lender to transfer your loan balance. Your new loan provider pays off the previous loan balance and becomes the new lien holder. Reasons for pursuing an auto refinance vary, but most borrowers refinance to save money or to obtain a lower interest rate.

Benefits of Refinancing

You can lower your interest rate by refinancing your current loan and save money over the term of your loan. If interest rates drop, refinancing offers an opportunity to take advantage of lower rates. Or, if your credit has improved since you originally took out your loan, you may qualify for a better rate. You can also refinance to extend your car loan or put money down toward the loan amount to ultimately lower your monthly payment.

Determine Your Finances

Before you apply for a refinance, determine your financial goals so that you can shop and apply accordingly. Use an auto loan calculator (see Resources) to view different loan options and which lending scenario saves you money or lowers your payment. Calculate your total payback amount, monthly payments with a new rate or extended term, or how much you can save if you put money down.

Refinance Requirements

Refinancing requires good to excellent credit. If you owe more than your vehicle is worth, you may not obtain an approval for the requested loan amount unless you have money to put down. Or, if your credit has suffered since the time you originally borrowed, you might not obtain a better interest rate. Banks determine loan amounts by reviewing your credit information and the vehicle's value. Depending on your credit standing, you may be approved for 60 percent to 120 percent of your vehicle's value.

Refinance Process

Search used-car rates offered by different lenders. Call to find out the rates; used-car offers aren't always advertised. Once you find a suitable lender, you can expect to provide the same information as you did for your original loan. You must fill out a credit application and provide detailed vehicle information, such as year, make, model, level, options and VIN (vehicle identification number). Once approved, your new bank pays off your old loan. Expect to sign a new contract, as well.

Read More

How to Quit a Claim on a Joint Purchase Automobile

Buying a car with another person results in a joint purchase. Both parties sign the car title and have ownership of the vehicle. But if situations change, and you want to remove your name from the car title and give up ownership, you can quit a claim and transfer complete ownership to the other person.

Instructions

1

Talk to the other party about removing your name. Situations vary, and in some instances, you don't need permission from the other owner to take your name off the title. Review the title first, and if the title reads "and/or" between both names you can remove the name without the other person's consent. On the other hand, if the titles includes "and" between both names, both parties must agree to the removal.

2

Sign the back of the title to transfer ownership. The recipient also signs the document to complete the transfer.

3

Submit the title to the Department of Motor Vehicles to finalize the transfer. The DMV will update the vehicle's information in its system and then create a new title and tags for the car. To avoid mistakes when filing the sections of the original title, you can complete signing of the title at the DMV in front of a representative.

Read More

Can I Extend My Auto Lease if it Is About to End?

If you frequently lease vehicles, extending might save you thousands in fees. Your lease may not have an option to renew the contract, but you can usually negotiate one anyway. Ultimately, the value of the car at the end of the lease will probably be the deciding factor for whether or not you should renew the contract.

Identification

You can extend an auto lease if your contract contains a clause allowing you to renew. When your lease agreement does not have an option to renew, you might be able to negotiate for a renewal by asking the car dealer for one. However, unless your contract specifically gives you the option, a renewal is no guarantee.

Benefits

In generally, extending an auto lease costs less than buying a new lease, because the dealer will not charge initial fees, such as a down payment on the car or a security deposit. The lease might also charge a lower monthly premium, because the car has depreciated in value --- lease agreements only make you pay for the depreciation in the value of the car plus an administrative fee.

Should You Extend?

If you are concerned about making the best financial decision, determine the value of the car. It is usually cheaper to purchase the vehicle at the end of the lease --- most lease options give the consumer the option to buy the vehicle outright after leasing it --- when the value exceeds the cost of the lease. Dealerships have to estimate the value of a car to set the price on a lease. If the dealer underestimated the depreciation, you can make a profit by buying the car and reselling it.

Tips

Get a quote on a vehicle lease extension from your current provider and a quote for a similar vehicle make and model from another dealer. Most areas have several leasing agents for any particular car make and model. If you are leaning towards extending your lease, factor in your maintenance during the original agreement. You may, for example, not have changed the oil or performed other routine work, which could make the car unreliable in the future.

Read More

How to Calculate Auto Financing

Calculating the financing for an auto can give shoppers a giant head start on the purchasing process. Often people are blown away by the initial sticker shock of a vehicle, but are overcome by an aggressive salesman promising to get the buyer into an affordable monthly payment. Sometimes this incurs hundreds or thousands of dollars paid over the life of a loan that could have been avoided by simple planning. Having the knowledge how to calculate--and prepare for--auto financing gives buyers additional leverage before ever stepping foot on the dealership lot.

Instructions

Calculating the Financing

1

Sum all costs of the vehicle including the MSRP (manufacturer's suggested retail price or sticker price), add-ons such as 4-wheel-drive and air conditioning as well as the destination charge (often between $300 and $600) and any preparation fees. If you negotiate the sticker price to something less, include only the amount you negotiated. This total is the base price.

Example: $15,000 MSRP + $1,000 4-wheel drive + $250 CD player + $350 destination charge + $50 preparation fee = $16,650 base price

2

Subtract the value of your trade-in (if applicable) from the base price. If the vehicle being traded has negative equity (meaning the amount owed on a loan is more than the value of the trade), you will add the difference to the base price. This is the net equity of the purchase.

Example: $16,650 base - $1,500 trade value + $2,225 left on loan = $17,375 net equity

3

Multiply the base price by your state's sales tax as well as local tax. The combined average typically is around 8 percent but varies by location.

Example: $16,650 * 8.5 state/local tax = $1,415.25 total sales tax

Note: In situations where there is a trade-in, and the trade value exceeds any remaining loan amount, some states allow for deducting the trade value from the base price before configuring the sales tax.

4

Multiply the base price by your state's title and registration rate for finding the transfer fees. These fees are often an additional 1 to 1.5 percent.

Example: $16,650 * 1.5 percent BMV transfer fee = $249.75 title fees

5

Add the net equity, sales tax, title fees and any additional document fees or extended warranty purchases. Subtract the amount of the down payment, if any. This is the amount being financed. Most states allow document fees and warranties to be non-taxable, though there are always exceptions.

Example: $17,375 + $1,415.25 + $249.75 + $750 (warranty plan) + $125 (document fees) - $2,000 down payment = $17,915 amount to finance

6

Multiply the principal (financed amount) by the periodic interest rate (interest rate divided by 12 months in decimal form) to begin finding the amount of the monthly payment. The interest rate is commonly between 7 and 10 percent, though persons with excellent credit will see rates as low as 2 to 3 percent and individuals with poorer credit histories will have rates at 14 or 15 percent. We'll call this the base amount.

Example: $17,915 financed * (8.9 percent or .089 / 12) = $17,915 * (.0074) = $132.57 base amount

7

Add 1 + the periodic interest rate (again in decimal form) and raise the sum by minus the ideal number of monthly payments. If you wanted a loan that lasted 5 years, you would use (-60) as the exponent. We'll call this the term multiplier. To adjust the final payment amount, you can always play around with the loan length to fit into a budgeted monthly payment--just like those sneaky sales people do with unsuspecting buyers.

Example: (1 + .0074 or 1.0074) ^ -60 = 0.6425

8

Subtract the term multiplier from 1. Divide the base amount by this result to find the monthly payment amount.

Example: $132.57 / (1 - .6425) = $132.57 / (.3575) = $370.83 monthly payment

Read More

Can You Make a Down Payment on a Car When in a Debt Program?

Debt management programs are effective tools in helping people get out of debt, but they also restrict people from obtaining new credit. The rules about what you can apply for and when you can apply for them can be quite confusing. This is especially true if you're on a debt management program and you want to buy a new car.

Debt Management Programs

Signing up for a debt management program is both a blessing and a curse. The good part about these programs is that you get huge interest rate reductions, allowing you to pay down your debt in a fraction of the time it would take you otherwise. The downside is that all of your credit cards will be closed and you will be unable to apply for any new cards while on the program. In addition, your status on the program will be reflected on your credit report.

Impact on Credit

Though your enrollment in a debt management program is reported by those creditors you're paying through the program, the debt management program itself doesn't have any impact on your credit score. The extent to which your credit is affected by your debt management program is determined by how long you've been on the program and how damaged your credit was before you joined. If you've been on the program for a while, you should have a nice history of on-time payments, which will help your score significantly. On the other hand, if you just joined and had credit problems recently, this will reflect badly on your worthiness to secure a car loan.

Buying a Car

There is nothing about a debt management program that restricts you from buying a new car. However, if your credit score is borderline, the financing company may notice your status on a debt management program and consider it as a negative. In this case, you may benefit from giving a higher down payment so that you don't have to finance as much. No matter how much you put down, it's likely that the dealership or finance company will try to use your debt management program against you in an attempt to make more money off of you. (See Reference 2)

Managing Your Payments

Buying a new car is sure to add hundreds to your monthly expenses. Before you agree to anything, make sure you can handle the additional hit to your monthly budget. Missing a payment on either your car loan or your debt management program can have serious consequences. Your creditors will likely drop you from your debt management program if you miss just one payment, whereas an auto finance company can legally repossess your car if it's even one day past due. This is another instance where a bigger down payment can benefit you, as it'll make your monthly payments more manageable.

Read More

How to Mathematically Calculate a Car Loan's Amortization Schedule

A typical car loan has a term of 48 to 60 monthly payments. The amortization of a level payment loan, like an auto loan, will have higher interest charges associated with the early payments and in the later payments more of the payment is principal to pay down the loan. A car loan will amortize at a set pace with each monthly payment. The math can be handled with a calculator and piece of paper.

Instructions

1

Divide the annual interest rate for the car loan by 12 to obtain a monthly interest rate. For example, if the annual rate is 9 percent, dividing by 12 gives a monthly rate of 0.75 percent.

2

Multiply the monthly interest rate times the original loan amount to calculate the interest portion of the first monthly payment. For the example, the car loan was for $20,000. Multiply $20,000 time 0.75 percent for an interest amount of $150.

3

Subtract the interest for the first monthly payment from the payment amount to get the principal amount of the first payment. The example loan has a payment of $415.17, so the principal amount is $265.17.

4

Subtract the principal amount for the payment from the loan balance. After the first payment, the loan balance on the example loan would be $20,000 minus $265.17 equals $19,734.83.

5

Write the first line of the amortization table, making columns for interest, principal and loan balance. Use the calculated figures under each column.

6

Calculate the interest, then principal for the second payment using the new loan balance to calculate the interest for the payment. Repeat this step for each payment of the car loan.

Read More

New Car Buying Tips for Women

Buying a new car can be intimidating for a woman because car shopping has traditionally been viewed as a man's job. Men generally know more about cars and when a woman shops with a man, the salesperson might pay more attention to the man. However, women can be just as successful at getting a good deal on a new car as men are.

Research Cars

Get an idea of what kind of car you want to purchase by researching cars before visiting a dealership. Ask your friends what cars they drive and what they like about them. Go online and look up suggested retail prices on vehicles in which you are interested. Investigate what special features are available and how much they cost, and decide which ones you want to have. If you make these decisions before going to a dealership, you are less likely to get talked into buying a car that isn't actually what you want.

Get Financing Before Shopping

Secure financing from a bank or credit union before stepping onto a car lot, especially if you are prone to impulse purchases or spending more than you can afford. When you secure financing, choose a monthly payment that you can afford for the duration of the loan and get pre-approved for a loan in that amount. Having a cap on your financing when you enter the lot helps keep you firmly under your budget. Plus, loans at credit unions usually have lower interest rates than those offered by dealerships.

Ask Questions

Even if you do not understand technical language about cars, you still have the right to understand the features on the car you buy and the details of its pricing. When a salesperson is explaining the car, request clarification if you do not understand terms he is using. Before signing any paperwork, read everything over and get clarification on any technical wording you find.

Stand Up for Yourself

You do not need to take a man with you to buy a car without getting ripped off. If you feel like the dealership is not treating you well or if the salesman is too pushy, just leave and go somewhere else. You are a customer and the salesman cannot force you to purchase anything you do not want.

Read More

Car Buying Tips for a VIN Number Check

Purchasing a car requires a substantial financial investment and making sure the vehicle is structurally sound and has a positive service history can save money. Cars and light trucks manufactured in 1981 or later have a 17-character number, or vehicle identification number (VIN), that can decode important information, according to CARFAX. There are several things to look for prior to purchasing a car that the VIN can provide. Services like CARFAX and AutoCheck offer reports for a nominal fee.

Locating the VIN

The VIN is located on the driver's side under the windshield.

Unfortunately, some used car dealers work to scam consumers by providing false information about vehicles for sale. They benefit by paying very little for a problem vehicle and selling it at an inflated price. For example, in 2002, the National Highway Traffic Safety Administration estimated that dealers sold 450,000 cars with odometer rollbacks, which cost consumers $1 billion dollars.

As a result, dishonest dealers may not be willing to provide the VIN or may modify the title to further obscure the truth, according to CARFAX. The best way to obtain the VIN is to record it from the vehicle by locating it on the dashboard under the windshield or the driver's side door jamb.

Car Safety History

Car accidents can cause severe structural damage.

Structural damage, recalls or salvage history each play a role the level of safety a new owner receives. For example, a vehicle in an accident that deploys airbags should be serviced for airbag replacement immediately, according to the National Highway Traffic Safety Administration. Furthermore, cars that have an accident history can have hidden problems that require future funding for additional repairs. VIN history reports provide information about a car's accident, airbag deployment or salvaged title history, which alerts consumers to structural compromises and assists with the vehicle purchasing process.

Original Powertrain Research

A car's engine typically has the VIN stamped on the engine block.

A car's powertrain includes critical components such as the engine and transmission. Replacement of these components indicates past problems that can require additional funding to repair dependent units. For example, engine replacement can affect oil seals, which provide the crucial engine lubrication required for proper engine function. Typically, the VIN is stamped into the transmission and engine and if it differs from the VIN on the dashboard, the powertrain has been changed.

Read More

How to Get Rid of a Car You're Making Payments On

Getting rid of a car you are making payments on can be tricky if you are "upside down" on the payments. Being upside down means you owe more than it is worth. If you want to save your credit score, you will have to pay the difference to the finance company. If your credit is already shot and you have not tried to repair it at the time you need to get rid of the car, you have more options.

Instructions

Getting What is Owed

1

Put the car up for sale. If you owe less than what the car is worth, when you sell the car, contact the finance company to find out what the payoff amount is. If you don't sell the car before the next payment is due, make that payment and call to get a new payoff amount.

2

Pay the finance company the payoff amount. Anything over the payoff amount is yours to keep. Complete all of the required paperwork to transfer the title to the new owner. Pay the finance company. Give a copy of your receipt of payment of the payoff amount to the new owner. It will take a few days (or more) for the finance company to clear the lien on the title.

3

Tell the finance company that the title is now in the buyer's name. It should be able to find the title easily enough via the title number, but it always helps to have the name of the new owner. The finance company will remove the lien from the title.

If You Can't Get What is Owed

4

Contact the finance company and let it know that you cannot afford to keep the vehicle. Officials there will tell you where to turn the vehicle in.

5

Do not make any more payments once you have notified the finance company. It will start the repossession process.

6

Leave the vehicle where the finance company has access to it. The finance company will instruct you on returning the keys. It may have you drop the keys and the car off at a certain place, or it may have you leave the car with the keys in a known location so someone can pick it up.

Have Someone Take Over Payments

7

Advertise the car for sale. For the price in the ad, put in the amount due to the finance company.

8

Write your ad so that it is clear that the buyer will be assuming payments. Contact the finance company to let it know you will be attempting to sell the vehicle and that the new buyer will assume the payments. The finance company will instruct you on its procedures to transfer the loan and the title.

9

Draft a contract between the buyer and yourself stating that the buyer will be taking over payments, who the finance company is, the finance company's contact information and when the payment is due. (This is the minimum that should be included in the purchase contract---if you prefer a more detailed contract, you should contact an attorney to help you draft a contract.)

10

Double-check with the finance company and the Department of Motor Vehicles to be sure the loan was transferred and that the title was properly transferred so that you do not have any liability should the new owner default on the payments.

Read More

Financing for a Car With Trade-in Options

Even if you owe money toward you current vehicle's loan account, you can still trade it toward another purchase. If you owe nothing at all toward a loan, you'll receive a price reduction for the value of your trade-in. A trade-in can affect your new car loan in several ways.

Negative Equity

A dealership must pay off your loan to take your car as a trade, so any negative equity is transferred to your new car's purchase price. For example, if you owe $12,000 on a vehicle worth $10,000, the dealer will pay off your loan but transfer the extra $2,000 to your new car's purchase price. You may want to shop for a new car with rebates or provide a down payment to avoid remaining in a negative equity position with your new car loan.

Considerations

Your new auto loan provider may require that you provide a down payment if you're carrying over money from another loan because of the vehicle's loan-to-value ratio. A lender may approve a loan up to 120 percent of the vehicle's bank-determined value if you have excellent credit, or as low as 60 percent with poor credit. If you're unable to provide a down payment, consider your interest rate to decide if if carrying over negative equity is beneficial. If your current car loan has a 10 percent interest rate and your new loan approval offers a 5 percent rate, you'll save money on interest charges.

Equitable Trade

If your car's trade-in value is higher than your loan's pay off, your vehicle's equity will go toward your new loan amount, reducing its purchase price. You can create equity in your new purchase without having to provide a down payment this way. If you owe $8,000 on a vehicle worth $12,000, $4,000 is reduced from your new car's purchase price in addition to any sales tax savings your state allows. Because of the reduction in cost, you can likely afford a shorter loan term.

Loan Payoff

To obtain a loan approval, your loan provider may require that you trade in your current vehicle if a loan exists because of your debt-to-income ratio. An auto loan provider may decide not to approve your loan while you still have a balance on another vehicle, depending on your credit and income. Keeping your current vehicle or waiting to sell it on your own may not be an option. Auto lenders can view your current loan accounts, including your monthly payment amount, length of account and how much more you have to pay until the loan is satisfied. If you want a second car, apply for a pre-approval before shopping. This way, you can find out if trading your vehicle is necessary.

Read More

How Does Refinancing a Car Affect Your Credit?

How Credit Lines Work

Refinancing a car loan essentially adds and subtracts a new trade line from your credit report. Each time a loan is refinanced, one lender is paid in full and one claims a new lien on the car. Each credit line on your credit report is updated monthly to give the ratings agencies an idea as to how you are managing your debt load. One way refinancing a car can adversely affect your credit is if the lender does not fully pay off the previous account and then the old car loan drifts into default without your knowledge.

New Accounts

New accounts theoretically should not adversely affect your credit. However, if you are desperately seeking a new loan and applying to many different lenders, the amount of inquiries reported (the action required of a lender to view your report) will begin to lower your score. Rating agencies see excessive inquiries as an attempt to secure credit without legitimate collateral, and will subsequently lower your score.

Refinancing

Defaulting on any loan will adversely affect your credit. Keep your accounts current and paid, and there will be no negative effects. However, if a car loan is refinanced a number of times in a short period of time, the credit agencies may lower your score as you are adding too many trade lines within a specified period of time. The rating agencies will not reveal all of their scoring parameters, but a good rule of thumb is to keep an account open and current for as long as you are able.

Read More

How to Sell a Car While Still Making Payments on It

With careful planning, you can sell a car that you still are making payments on. However, many states do not allow transfer of ownership while a lien exists on the car's title. If you have loan, either a bank name is listed on the title or the bank keeps the title until the loan is satisfied (in some states). Also, buyers are weary of purchasing a car that can be repossessed for your non-payment, even if title transfers are allowed. Learn how to work with your lender and buyer to sell your car while still making payments on it.

Instructions

1

Get your car's payoff amount. Call your lender to find out how much you owe, as this is what you'll have to sell your car for to satisfy the loan.

2

Prepare your car for sale by cleaning it and removing your personal items.

3

Determine how much you can sell your car for. You can use Internet-based appraisal guides, such as those offered by the Edmunds or Kelley Blue Book websites (see the Resources section). If you cannot sell your vehicle for as much as it is worth, you will have to come up with the difference to remove the vehicle's lien.

4

List the vehicle for sale. Try eBay Motors or AutoTrader (see the Resources section), although depending on where you live, your area may offer other used car classifieds, like newspaper ads. Take pictures of your vehicle and list all features and details about the car in the ad.

5

Meet with possible buyers. Once you have one interested, explain that there is currently a loan on the vehicle that you intend to pay off with the sale price. Arrangements may be made for the buyer to pay the bank directly to assure the buyer that the money is going to satisfy the car's loan.

6

Show the buyer your payoff amount and go to the bank together or call the bank in your buyer's presence. If you're selling the car for more than the loan balance, you will keep the difference.

7

Have the buyer pay off the loan and obtain the lien release, if the bank allows.

8

Give the buyer the title and the original lien release, if they are sent to you (some will not send to another person). Keep copies for your records.

9

Follow any additional motor vehicle requirements in your state, such as notarizing signatures, completing a title application or providing a bill of sale. Call your state's motor vehicle department for specific instructions.

Read More

How to Transfer Auto Leasing

Leasing a car gives you the option of returning it to the dealership after a few years. But some people wish to terminate the lease early. Early termination can involve expensive penalties. However, transferring the lease to a new party is one way to end a lease term early. But before placing ads in the paper, know what's involved with auto lease transfers.

Instructions

1

Get permission to transfer your existing lease to a new party. Some leasing companies do not openly advertise lease transfer options. Speak with your leasing company first to see if it permits transfers, and inquire about the process of transferring your lease to a new party.

2

Use different outlets to find someone to take over the lease. Aggressively advertise the lease transfer to quickly find someone. You can run an ad in the local automobile section of the classifieds or place an ad on websites like LeaseTrader and SwapALease.

3

Wait until the person completes an application with your leasing company. Leasing companies have the final say in lease transfers. The individual taking over your lease will need to complete an application, submit income information and wait for an approval before taking possession of the car.

4

Complete transfer documents. Once the transfer is approved by the leasing company, the company will forward transfer papers for you and the new lessee to sign. Sign the documents and return to the leasing company to complete the transfer.

Read More