What Do You Need for a Car Title Loan?

When you find yourself in a cash crunch, whether you need to make an urgent purchase or pay bills, you may be tempted to apply for a short-term loan. One type of short-term loan is a car title loan. Before you go forward, know what you need to apply and the conditions of this type of loan agreement.

Definition

A car title loan is an arrangement between a title lending company and a car owner. The lending company provides the borrower with cash in exchange for ownership of the car title until the loan is repaid. The title lending company checks the blue book value of the car to determine how much the company can lend. If the borrower fails to repay the loan, the title company takes ownership of the car per the agreement. A car title loan is similar in concept to a standard short-term payday loan, which the borrower must repay in a matter of weeks.

Free and Clear Title

One of the items a borrower needs to get a title loan is a free and clear vehicle title. If there is a lien holder on the title, such as a bank, a potential borrower cannot use the car as security for this type of loan. The applicant must own the car and have the actual title in his possession to present when applying. The lending company commonly holds onto the title until the borrower repays the loan.

Checking Account and Job

To qualify for a title loan, the lender needs assurance that the borrower can afford to repay the money. So the applicant needs a consistent job and must verify his income in order to apply for a car title loan. In some cases, the car title lending company also requires the applicant to submit a canceled check or a checking account routing and account number in order to secure a title loan. The lender can then withdraw the required payment from the borrower's checking account.

Warning

Car title loans come with a number of risks and warnings. For one, the interest rate on a car title loan is extremely high compared to a standard loan. Though the interest rate the lender quotes seems reasonable at first, when you calculate the annual percentage rate, the cost of the loan can climb well past a 100 percent interest rate. You also risk losing your car. So consider all possible alternatives before settling on this high interest, high-risk loan, such as a small loan from a loved one or a small loan from a credit union. You can also create a budget and make temporary sacrifices (such as canceling cable service for a month) so that you can save and avoid the need for this expensive type of loan.

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Can I Deduct the Interest Paid on Car Loan?

As is specifically stated in the IRS Tax Topic 505 discussion of "Interest Expense," interest paid on car loans for personal use, as opposed to business use, is not tax deductible. Car loan interest for personal autos is considered "personal interest," which is a category of nondeductible expense.

Basics

According to Cars Direct, tax deductible interest expenses include: "mortgage or home equity payments, student loan payments, business loan payments and payments for specific types of personal loans."

Considerations

While conventional car loans do not fit the criteria for tax deductions, you can finance your auto purchase in ways that allow for deductible interest. Home equity loans or lines of credit, secured with real property, do have tax deductible interest and can often be used for an auto purchase. Additionally, if you use your auto primarily for business purposes, it could be considered a business expense.

Tax Deductions

Exploring other options to make auto financing tax deductible is wise since it can save you money on tax obligations. You should keep your sales and financing records when buying a car as it has been rumored during the economic downturn (2007-2010) that the IRS is contemplating new tax rules to make auto loan interest and sales tax both deductible as part of stimulus programs.

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What Are the Questions to Ask When Leasing a Car?

Before leasing a car, there are several key questions to ask dealers, which should be answered to your complete satisfaction. You obviously want to secure the best available leasing terms. By understanding car-leasing fundamentals, along with the various options at your disposal, you can negotiate the right deal---one that simultaneously complements your current financial situation and saves you money over the lease's lifetime.

Negotiable Particulars

Generally speaking, car dealers have only one negotiating card in their decks: vehicle pricing. Dealers work as agents for the leasing institutions, which typically establish such essentials as down payment requirements, security deposits and acquisition fees. This is precisely why it is wise to inquire what items in the lease contract are negotiable, and what items are set in stone. With this knowledge in hand, you can further your quest for the most favorable leasing arrangement.

Financing Options

Query dealers, too, about their leasing company and whether you can use the services of an outside party. While most automobile shoppers are unaware of this financing alternative, it nonetheless exists. Ordinarily, car dealerships work with their manufacturers' financial arms, such as Ford Motor Credit and American Honda Finance Corporation.

However, if you are not wholly convinced that the available leasing terms at the dealerships are optimum, and you feel you can obtain more propitious terms elsewhere, then by all means explore prospects in banks, credit unions, and car-leasing concerns with no relationships with automobile manufacturers. The bottom line is that you want the best possible terms, and sometimes they are not through a car dealership. Check out PrimeLease at www.primelease.com for more information on these lease-financing alternatives.

Best Time to Lease

Are there better times of the year than others to lease a car? Yes. You can often land a preeminent leasing deal when the car manufacturer offers promotional discounts. Discounts from the automobile company, as well as the individual dealer, are one-two punches that work to your advantage. Inquire about forthcoming promotions. You can always bargain with dealers on price. But having the automobile manufacturer kicking in on the pricing discount is optimal.

Buy or Lease

Querying car dealers about the benefits of purchasing a vehicle outright, versus leasing one, can also prove extremely enlightening. When you enter into any sort of leasing agreement, you are financing the use of a vehicle---period. There is no ownership involved. This reality bite is exactly why the answer to this question is so significant.

Ask yourself whether the lower monthly payments of a leasing contract---versus a purchase---is both necessary and in your short-term and long-term interests. Purchasing a mode of transportation, as opposed to leasing one, typically amounts to genuine savings over time. Nevertheless, with a lease, you are only paying for a fraction of the vehicle's overall value, and, in many instances, do not even need a down payment.

In addition, to purchase a vehicle, you will be required to pay an interest rate commensurate with your creditworthiness. If your credit is less than stellar, this would entail a high interest rate and considerable monthly payment. Based on your credit score, you might be ineligible for a loan.

Your current monetary situation and personal circumstances assume the definitive role in whether leasing or buying a car is right for you. It also clues you on what monthly leasing payment you can afford both immediately and in the coming months and years.

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Can You Trade in a Vehicle Without a Signature From the Primary?

A loan's primary borrower, also known as a co-signer, is just as much of a vehicle's owner as the loan's secondary borrower, or the other person named on the auto loan. Both co-owners must sign the vehicle's title to release ownership to a dealership when trading in a vehicle.

The Vehicle's Title

Both your name and your co-owner's name are listed on your vehicle's title. A dealership requires that you provide a signed title at the time you trade in your car. Most dealers also require that your co-owner is present for signing. Some states require notarized signatures; many dealers employ a public notary, so you don't have to find one on your own. If notarized signatures are not required in your state, the dealer must verify the co-owner's identity before accepting his signature on the vehicle's title.

Title-Holding States

If your state sends the vehicle's title to the lien holder and not to the actual owner, you won't have a title to offer your dealership. Your dealership will obtain the vehicle's title once it satisfies your car loan. Dealers in title-holding states may have different signature requirements. You and your co-owner might be asked to return to the dealer to sign your names once it receives the vehicle's lien-free title. Your dealer may also request that you and your co-owner sign a "Power of Attorney" form. This form allows the dealer to sign the vehicle's title on your behalf, eliminating the need for you to return to the dealership at a later date.

Co-Owners Who Are Out of Area

Speak with your dealership to find out its requirements for a co-owner's signature when she is not local. If the co-owner is unable to come to the dealership, your dealer may offer an alternative, such as offering to mail any relevant paperwork. Your co-owner can expect to answer personal information before the dealer mails out the vehicle's title and other paperwork, in order to prove identity. The co-owner may have to sign a "Power of Attorney" form, which is also sent out by mail. Since the form must be notarized, it allows the dealer to easily prove identity and to sign the vehicle's title on the co-owner's behalf.

Other Issues

States and lenders have different signature and title requirements for co-owners who have passed away or are unable to sign. Usually, a "Power of Attorney" form is necessary if the co-owner is not able to sign, such as for military reasons. If the co-owner is deceased, the owner of the estate may sign the title as long as proper paperwork is provided to the dealer. Necessary paperwork depends on state rules. To find out which papers and forms you need in order to transfer ownership, call your state's Motor Vehicle Department.

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How to Calculate a Lease on a New Car

Leasing a car is a confusing process for many buyers. It is, however, possible to calculate the lease payment so that you can understand how much you are actually paying for the car and make an educated decision about whether leasing a car makes good financial sense. To calculate lease payments on a new car, you will need to get some basic information from the car dealer.

Information Needed to Calculate a Lease

You will need to find out from the dealer what the manufacturer's suggested retail price, MSRP, is of the vehicle. This figure is also commonly referred to as the sticker price of the vehicle. In addition, you need to ask the dealer or bank financing the lease for the money factor. The money factor is the interest rate used for the lease payment calculation. The lease term is the duration of the lease expressed in months. Finally, you will need to ask for the residual value of the car expressed as a percent. The residual value is the value of the car at the end of the lease. This value is a predetermined percent that is written into the lease contract at the time of purchase.

Calculate Residual Value in Dollars

Calculate the value of the vehicle at the end of the lease by multiplying the MSRP by the residual value. For example, if the MSRP of the vehicle is $25,000 and the residual value is 55 percent the residual value expressed in dollars is $25,000 x .55 = $13,750.

Calculate Depreciation

Take the actual purchase price of the vehicle, assuming it is less than the MSRP, and subtract the residual value in dollars from this amount. Continuing the same example, and assuming an actual purchase price of $23,000, subtract $23,000 from $13,750 = $9,250. This figure represents the depreciation of the vehicle during the term of the lease.

Monthly Depreciation Payment

Divide the depreciation by the lease terms in months. Continuing the same example and assuming a 36 month lease, divide $9,250 by 36 = $256.94. This figure represents your monthly depreciation payment.

Monthly Payment Calculation

Take the actual purchase price of the vehicle, $23,000, and add the residual value in dollars, $13,750. This yields a total figure of $36,750 in our example. Multiply this figure by the money factor. Let's assume a money factor of .0033. This yields the money factor payment of $121.28. Add this figure to the monthly depreciation payment of $256.94 in this example, this results in a total lease payment of $378.22.

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How to Sell a Car in North Carolina

If you live in North Carolina and you want to sell your car, there are several ways that you can go about it. You can sell the car to a dealer or a used car lot, you can trade it in while buying another car, or you can try selling it yourself. Selling the car to a dealer or trading it in is the quickest way to go, and the easiest, but that may result in your getting less for the car than it is worth. Selling the car on your own could be time-consuming. If you are in a hurry, selling the car yourself is probably not the way to go, but if you have the time, that kind of sale probably will yield a higher price for your car.

Instructions

1

Take your car to a dealer, such as CarMax or a small used car dealer that buys cars outright. The dealer will inspect your car to make sure it meets certain standards and doesn't have any mechanical problems. If the car passes inspection, the dealer will make you an offer. If you take the deal, the dealer will handle all of the paperwork. If you owe money on the car, that amount will be deducted from your payout and sent directly to the lender.

2

Trade in your car while buying a new car. The dealership where you buy the car will be happy to take the old one off your hands. Research the value of your car in Kelly Blue Book to ensure that you are getting a fair price. When negotiating with car dealers, look at the trade-in value--not the retail value. The retail value is the price for which the dealer will sell the car bought from you.

3

Sell the car on your own. Advertise online, in local trade papers or in classified ads. Give a short accurate description of the vehicle along with the price and condition. Keep your car clean on the off-chance that someone wants to see it. Selling the car on your own may be the easiest course if you do not owe anything on the vehicle and have the title in hand. For print advertising in North Carolina, try your local newspaper or a regional paper such as the Charlotte Observer or a want ads-only paper like the IWANA. For online advertising, try Sellmycar.com or Oldcaronline.com, which used to be Old Car Trader.

4

If you sell the car on your own, go to the bank with the buyer to make sure that the payment will clear.

5

Go with the buyer to the tax office to transfer the title and ensure that all future property tax on the vehicle is in the new owner's name. If you don't own the car yet, you will need to call the lender while the buyer is with you. Give instructions that the title on the vehicle is to be changed to the new owner's name and mailed to the new owner. Inform the lender that payment is on its way.

6

Fill out the section on the title transfer papers that pertains to liens if the sale of the car won't cover the loan payoff. This will help transfer loan obligations to the new owner. Contact the lien holder first to ensure this is all right and give the lien holder any information required.

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How to Buy a Car From a Deceased Person's Estate

Buying a car from a deceased person's estate is not much different for the purchaser than buying any used car. Most of the work falls to the estate's executor to ensure that the transfer is legal. In states such as North Dakota, you can be liable for sales taxes on vehicles you purchase from an estate. Your local tax assessor's office can tell you if you must pay sales tax on the purchase in your state.

Inspect the Car

A car can develop mechanical issues if it does not run for a period of time. Not only should you inspect the car but also request permission to have a mechanic inspect the car. While you can see surface damages, unless you have experience repairing and maintaining vehicles, you may not recognize internal problems that the car may have. If you or the mechanic find problems, negotiate with the executor on the price you agree to pay.

Confirm the Legality of the Sale

If the probate court is allowing the sale of the car before it clears an estate, the executor will have papers proving his right to sell the vehicle. Ask to see proof of the seller's authority to sell the car. Only the executor or named administrator has the authorization to sell items from an estate. The seller should have an order from the probate court, a death certificate and personal identification. Confirm with the probate court that the executor has court approval to sell the estate's assets and keep a copy of the death certificate for titling the car.

Compare the Title with the Other Paperwork

You must confirm that the vehicle belongs to the decedent. Match the vehicle identification number on the car to the number listed on the title and compare the name and address on the title to the information on the death certificate and other papers. If nothing matches, consult an attorney or the police before proceeding with the purchase.

Transfer the Title

To make the car legally yours, give the executor the money for the car and take the title to your local Department of Motor Vehicles or local tax assessor's office. The fee to transfer a title varies from location to location. For example, in Texas the fee ranges from $28 to $33 depending on the county, at the time of publication. You may also have to pay a service fee for the transfer. Remember to insure the car in your name according to the laws in your state.

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If You're Separated, How Do You Take Your Husband's Name Off the Car Loan & Title?

Most lenders do not allow co-owners to remove one another from an already-established car loan. Because of this, you cannot remove the co-owner's name from the title, either. You can call your bank to ask about its removal process, but it likely requires you to keep your husband on the loan and title until the loan is satisfied.

How Your Loan Was Established

Your current loan was based upon information initially obtained from both you and your husband's credit report. Both of your credit applications determined your approval term, interest rate and down payment, if any was required. Additionally, your loan-to-value ratio, which is the percentage of a vehicle's value you may borrow against, was determined using both of your information. For this reason, you cannot simply remove someone from a loan, whether it is a non-related co-owner or a spouse.

Talk to Your Husband

Since your husband is a co-owner, he must agree to sign the vehicle's title over to you if you decide to pay off the loan or get rid of the car. While you may pay the car payment and drive the vehicle daily, he is still a partial owner and just as responsible for the vehicle's loan payments. Before you try to take him off of the loan or title, make sure he agrees to sign the title over to you. Even if you obtain a new loan, he has to sign the title to release his interest in the vehicle.

Refinancing Option

If you have your husband's agreement, try to refinance the loan with another lender. To do this, call your lender to obtain the car's loan payoff amount and apply to another lender for the loan's balance. Once you have an approval, your new lender will pay off the old loan balance, but still, all owners must sign the title. If you do pursue a new loan and your husband refuses to release ownership, you cannot transfer the title or the loan.

Sell the Vehicle

If you want to cut ties with your husband but he refuses your sole vehicle ownership, consider selling it. Again, he must agree to this, but he may be more receptive to making a profit or getting rid of the vehicle all together. You can sell your vehicle for any price you determine as fair. You must also satisfy the loan balance to release the vehicle's lien. If you sell the car for less than the loan's payoff amount, you must come up with the balance due. If you sell it for more, you and your husband can split the profit.

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Car Buying Strategy

Buying a new car can be a stressful experience. By being prepared, you can experience less stress and not pay more than you have to for a car that fully meets your needs. Understand the best car buying strategy and the process will be much easier.

Planning

Before walking into a showroom, decide what your needs are. For example, if you plan on driving on frequent long mileage trips, gas mileage may be important to you. If you have a family and travel often, inside room and plenty of trunk space may be important. Decide on how much you can afford to spend monthly for car payments and related expenses such as auto insurance and gasoline. After determining your requirements, pick some manufacturers and models that best meet your needs. Check to see if there have been any recalls or problems with the models you are considering

Research

Before visiting a dealer, research prices online. Prices obtained there can be used to negotiate a lower price at the dealer. Research the dealer cost so that you know how much room you have to negotiate.

What to Bring

Car Buying Tips recommends you bring your credit report, online Internet quotes, new car invoicing information and insurance quotes to the showroom so you are fully prepared.

Scams

Watch out for dealer scams recommends Car Buying How To. Such scams include charging you several hundred dollars to etch the vehicle identification number into your car windshield, adding a dealer preparation fee which could be negotiated away and including an extended warranty in the price without asking you if you want one. Don't be swayed by a salesman who says he has to talk to a manager first to get approval regarding the deal the dealership will give you. This is often used as a strategy to get you to agree to a deal because of what appears to be a special accommodation.

Negotiation

Always respond to the price the salesman provides you by telling him the price is too high. Inform the salesman that you will be shopping at multiple dealers and want their best price because you are not coming back to the dealer for additional quotations. This will incent the dealer to provide you with the lowest price possible. Don't accept the financing options provided by the dealer because those options may not be the most cost effective. Get quotes from several other financing sources such as a bank and an independent lease financing organization if you choose to lease your car. Get a confirmation in writing of the final price.

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Car Buying Issues

Creating a budget before you shop for a car can save you thousands of dollars. Consider vehicle costs beyond the car's purchase price so you can comfortably afford your vehicle. Also avoid ownership issues by having your used vehicle inspected by a mechanic to avoid paying for repairs shortly after your purchase.

Financing

Rather than set out to purchase a vehicle and apply for financing afterward, obtain a preapproval before shopping. Doing so allows you to set your budget based upon your loan approval terms, such as interest rate, term and down payment requirements, if any apply. If you intend to purchase a vehicle privately, a loan approval can take up to a week. With a preapproval, you can return to your lender with your vehicle information and obtain your check quickly. If purchasing from a dealer, many provide financing but may also increase your interest rate to make a profit. A preapproval secures your interest rate.

Vehicle Repairs

Purchasing a vehicle only to find out it needs repairs afterward is disappointing, especially if you've already spent most or all of your money on the car's purchase. Avoid having to pay for vehicle repairs by having the car properly inspected before you purchase it. Vehicle history reports aren't always accurate. Make arrangements to have a certified mechanic inspect a car before you agree to purchase it. A mechanic can identify previous body work, determine whether the car has been properly maintained or if it needs immediate repairs.

Pricing

Research vehicle pricing before you pay a seller. Paying too much money for a car creates a negative equity situation. Ensure you're paying a fair price by checking the vehicle's private sale or retail value at Edmunds.com, the Kelley Blue Book or NADA Guides website. Also contact your state motor vehicle office to determine the cost of taxes and fees so you can budget appropriately. Some areas can add thousands in tax charges. Prepare to provide the extra cash or determine how adding the fees to an auto loan affects your monthly payment.

Insurance

Even if you have overcome other car purchase issues and find a great buy, you may still face cost problems when you add your car to your insurance policy. If you purchase a relatively new car or borrow a loan, you'll likely need a full-coverage insurance policy. A full coverage policy is the most expensive you can purchase; your monthly insurance payment can easily exceed your car payment. Check prices with your insurance agent. If the cost of insurance is high, you may have to adjust the price of your vehicle to afford a lower auto loan payment or lower cash price.

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Who Am I Required to Pay If Car Dealer Sells a Loan to a Bank?

When you borrow money, you are required to make monthly payments to the company or individual that lended you the money. If a car dealer sells your loan to a bank, normally you should start making your monthly payments to that bank. However, in some circumstances, one entity can own a loan and another entity can accept your payments. Therefore, you should check with your dealer to find out where your payments should go.

Dealerships

Car dealerships often promote in-house financing. However, very few dealers directly finance car purchases. Generally, dealers arrange to have finance companies or banks provide financing for car buyers through the dealership. This arrangement benefits customers who otherwise would have to obtain financing themselves. Instead, the dealer processes the paperwork for the car purchase and the loan application on behalf of the finance company. Some dealers are equipped to accept loan payments which are then passed onto the finance company that actually financed the loan. You may not realize that the dealer relied on financing from a third party until you see the finance company's name on your credit report.

Selling Loans

Some car dealers offer in-house financing that actually uses the dealer's own funds. Generally, this occurs when dealers agree to sell cars to people with poor credit who are unable to obtain car loans from local banks. Investment companies sometimes buy car loans from dealers, and in-house loans written for people with poor credit usually have very high interest rates. These high interest rates result in significant returns for these investment companies. However, many of these companies do not have retail branches and therefore you may have to continue making your payments at the dealership rather than the investment firm that buys the loan.

Servicing

Banks that write loans make money on the interest payments that borrowers make, but other banks make money from loans without actually lending any money. Most major banks have servicing divisions that employ people to handle paperwork and payment processing on loans written by or owned by other banks, finance companies or even car dealerships. Your dealer may hire a bank to service its loans in which case you have to make your monthly payments to that bank. However, in a servicing relationship, your loan still belongs to the actual dealer.

Considerations

Many people become confused when loans that they owe money on are sold. Misdirected payments often lead to late fees, and late payments can also negatively impact your credit score. If you are unsure where to make your payment, you should clarify the matter before your payment date. Banks can assess late fees on payments made more than 10 days past the due date, so you do not have long to redirect a payment sent to the wrong company. If you have your payment set up to come out of your account as an automatic debit, you should redirect it as quickly as you can as many banks require at least 14 days notice to redirect automatic debits to a new destination.

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Questions to Ask When Buying a Car From a Private Owner

Buying a car from a private seller can result in landing a great car for a much better price than would be offered by a dealer. A private seller does not have overhead and payroll costs associated with dealerships and may simply be looking for a sale price that will pay off his current loan balance. Buying from a private seller can, however, be tricky. Asking the right questions can ensure that the buyer receives a deal that he can live with.

Can I Have the VIN Number?

Asking for the car's VIN number will allow the prospective buyer to purchase a vehicle history report from a number of companies that details any accidents the auto has been involved in or any damage done to the car. The buyer will find out if the car has been damaged in a flood or totaled in an accident. The report will also show whether the car has a salvage title, which means that the car was reported as a complete loss by an insurance company. Buyers can also see if the mileage on the car is correct, or if the odometer has been rolled back to make it appear it has fewer miles.

Do You Have Maintenance Records?

Since many used cars do not come with the warranty that a new car does, the buyer should also ask for maintenance records. The maintenance records will show that the car has had the oil changed on a regular basis, has had the manufacturer's recommended maintenance performed in a timely manner and will show if there have been any major problems that the buyer needs to know about. If looking at a late model car that still has a warranty left, also find out if the warranty can be transferred to a new owner. If it cannot, negotiate with the seller to lower the asking price in order to cover the purchase of an extended warranty.

Why Are You Selling the Car?

In a lot of cases, the seller is looking to purchase something new or just doesn't need the car anymore. Asking why she is selling should not be a problem, and if the seller hesitates to answer, it may be a red flag. If there is a problem with the car that needs to be repaired, not only should the seller explain this, but it should also be reflected in the asking price. Trust your instincts when purchasing from a private party. If you sense they are hiding something, don't be afraid to walk away from the purchase.

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Will You Have to Pay It Off if an Insurance Company Totals Your Car & You Have a Warranty?

Your vehicle warranty has nothing to do with an insurance payoff, so expect to pay off the remainder of your loan if you do not have gap insurance or owe more than the vehicle's value. If you purchased an extended warranty, you might be able to cancel the contract and receive a credit toward your loan or money back.

Loan Payoff

If you have collision coverage on your vehicle, which most lenders require, your insurance company pays your vehicle's market value to your lender. If the insurance payout is more than your loan's payoff amount, your lender will return the excess money to you. If you have a lease, you will receive nothing, as the bank owns the vehicle, not you. If your loan balance is more than the car's value, you must continue making payments until your loan is satisfied. Read your bank contract for more information.

Warranty Cancellation

Your vehicle's warranty covers repairs to your vehicle if the car malfunctions, but not body damage or maintenance. Totaled vehicles are covered by your insurance company, not a factory or extended warranty coverage. If you are still under the remainder of a factory warranty, there is no need to cancel it. If you purchased an extended warranty, receiving a partial refund for the amount you paid or used is possible. Call your warranty provider to discuss your cancellation and refund options.

Gap Insurance

If you owe more than your vehicle's insured market value, gap insurance can pay off the remainder of your loan. Gap insurance is an optional purchase, although some leasing banks require the coverage. If you are not sure if you have gap insurance, ask the dealer you purchased from. You can also ask your bank if the coverage was included in your loan, or ask your insurance agent, as the coverage might be included with your policy. Unfortunately, without gap insurance, you are responsible for paying the loan balance.

Payment Arrangements

Depending on the amount you owe to your lender, it may be willing to work out a payment plan with you. If you can't pay off the balance in full, discuss payment options with your lender so you can afford to cover the excess balance and the cost of replacing your transportation. If you pursue another car purchase from a dealership or plan to use the same lender to finance another car, you may be able to carry the loan balance over to a new loan.

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Can I Get a Car Loan After I Filed Bankrupcty?

Filing for bankruptcy is a financially traumatic event that will have a long-term effect on your ability to borrow money. A Chapter 7, or liquidation, bankruptcy stays on your credit report for 10 years, and even a Chapter 13 reorganization will remain in your credit history for seven years after you complete your court-ordered repayment plan. Whether you can get an auto loan after bankruptcy is up to your bankruptcy trustee and the lender, but your chances are better if you know what lenders look for.

Trustee Approval

The result of filing for Chapter 13 bankruptcy is usually a three- to five-year repayment period during which you pay off much of your debt under a new agreement that the bankruptcy court requires and and your creditors to agree to. During this period, a court-appointed trustee oversees your case. If you want to borrow any money while in repayment, including an auto loan, you need the trustee's permission. If an auto loan would significantly affect your ability to repay your debt, the trustee can prevent you from getting one. However, if you have a stable income and have been paying off your debt on time, the trustee may agree to let you finance a vehicle.

Rebuilding Your Credit

Once you exit the bankruptcy process you're free to apply for any auto loan you choose, and lenders get to make the decision about whether to extend financing to you based on your credit history. Compared to other types of loans, such as credit cards, an auto loan is reasonably attainable since the lender will have the vehicle itself to act as security, meaning that if you fail to make your payments the lender can repossess your car and sell it to recover the money you borrowed. If you do get a car loan, you'll start rebuilding your credit history with each on-time payment until your bankruptcy finally disappears from your credit report.

Income and Security

Auto lenders, including commercial banks and the lenders that provide loans directly through car dealers, will be looking for certain things when you apply for a car loan with bankruptcy on your credit history. One of the most important factors is your income. A bankruptcy court won't allow you to reorganize your debt in Chapter 13 without a stable source of income, so if you have the same job when you apply for an auto loan you have an advantage in the eyes of lenders. On the other hand, a low-salary or a job in an unstable industry will hurt your chances of qualifying for a car loan shortly after bankruptcy.

Auto Loan Tips

There are several things you can do to convince lenders to extend you credit for a car loan despite the presence of bankruptcy on your credit report. The first is buying a used car that costs less than a new model. The less you owe, the more likely you are to be able to pay it back. For the same reason you should offer a large down payment so that you'll be borrowing less and also paying less in interest. If you can afford to wait until a dealer or lender offers a low promotional interest rate on car loans, you may find this to be an even better time since the lower rates translate to a more affordable monthly payment.

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How Can I Figure What My Auto Payments Will Be at a Certain Percentage?

The amount of your monthly auto loan payment depends on two major factors: the interest rate and the length of the car loan. The interest rate is based on prevailing market conditions and your credit history. The length of the car loan is generally anywhere from three years to seven years. Shorter loans have higher monthly payments but less total interest, while longer loans have lower monthly payments but cause you to pay more interest. Once you select your ideal loan term, you can calculate what your auto loan payment will be at a specific percentage interest.

Instructions

1

Divide the interest rate percentage by 100 to convert it to decimal form. For example, 8 percent becomes 0.08.

2

Divide the interest rate decimal by 12 to calculate the monthly interest rate. In this case, 0.08/12 is 0.0067.

3

Add 1 to the monthly interest rate. In the example, you now have 1.0067.

4

Raise this to the negative power of the number of monthly payments in your term. For example, with a four-year auto loan, you have 48 monthly payments. Therefore, you would calculate 1.0067^-48, which is 0.726.

5

Subtract that answer from 1. For example, 1 minus 0.726 leaves you with 0.274.

6

Multiply the monthly interest rate by the amount of the car loan. For example, if you are borrowing $17,000, multiply that by 0.0067 to get $113.90.

7

Divide the answer from Step 6 by the answer from Step 5 to calculate the monthly auto payment. In this case, $113.90/0.274 is $415.69.

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When Can a Car Be Legally Repossessed?

Consumers may take out an auto loan to pay for a car. One important element of a loan is the borrower's responsibility to repay it, usually by making monthly payments. Based upon the loan agreement, the lender has certain rights if you default on that loan, so it's wise to understand when a car can be legally repossessed.

Significance

Any time you fail to honor the terms of your loan agreement, the lender can legally repossesses the car. This occurs most often, however, when a borrower fails to make payments on a car loan. In this case, the lender may hire a tow truck to come to your home or place of employment to retrieve the car. This is called an involuntary repossession. A voluntary repossession occurs when you return the car to the lender on your own.

Consequences

According to Financial Web, a repossession is one of the most devastating items to have on your credit report. The data in your report determines your FICO credit score. Thirty-five percent of your FICO credit score reflects how well you pay your bills. A repossession demonstrates that you did not honor your loan obligation and it will lower your score. How much damage occurs to your score will depend upon the other factors in your report.

Considerations

The repossession of the car does not end your financial responsibility for the loan. The lender will sell the car at auction in an effort to recover some of the money still owed on the vehicle and then will expect you to pay the deficiency. Deficiency is the difference between the amount of the balance owed on the car and the amount the car was sold for. You are legally obligated for this debt, and the lender may attempt to collect it.

Warning

If you fail to pay the deficiency amount, the lender can take certain steps. It can turn the debt over to a collection agency. This agency will place a collection account on your report. In addition, depending upon the amount, the lender or the collection agency may sue you to obtain a judgment. A judgment will allow the judgment owner to potentially garnish your wages or seize money in your bank accounts to pay the debt.

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Questions to Ask When Taking Over a Car Lease or a New Car Lease

If assuming someone else's lease, several questions can save you money at the end of the lease's term. Learn which question to ask before assuming someone else's lease so you don't find yourself paying more than you expected at the end of the term.

How long is the Bumper-To-Bumper Warranty Period?

Because you'll have to return the leased car in good condition with minimal wear-and-tear, you should make sure that the car remains under its factory bumper-to-bumper warranty during the lease. Many manufacturer's offer a 36,000 mile or three-year bumper-to-bumper warranty, but leases can go beyond this time frame. Check with the manufacturer to determine if the car will be out of warranty before the lease is over, as repair responsibilities become yours. Also, ask to see the vehicle's service history.

Has the Vehicle Been Damaged and Repaired?

Ask if the car has had any body repairs. As long as the damage was minimal (usually under $1,000) and repaired properly, you shouldn't have problems at the time of return. However, if the vehicle has sustained significant damages with noticeable or bad repairs, you may be responsible for further repairs, if any are necessary. For example, all sides of the car should match and all spaces between body panels, trunk and hood should be equally spaced. Check the car over and make sure it looks new, and ask to see any accident repair history. Check the inside of the tires for unequal wear, which may signify frame damage. If the car has been in an accident and you are unsure of the fees that may be due to you, call the leasing bank or simply walk away from the lease assumption.

Can I Review the Lease Contract?

Ask to see the lease contract. Because you will be assuming the lease, all of the provisions will apply to you, so read it thoroughly. Find the mileage allowance and check the odometer to determine how many miles you can drive per month or year, depending on how many months are left. Consider your driving habits, and do not assume the lease if you do not think you can stay under the mileage. The contract will also document the over-mileage fee, which is usually 18 cents per-mile and can prove costly. Also, find out if any lease-end fees exist, also known as a disposition fee, or the amount the leasing bank charges for reconditioning the car for resale. This amount is listed in the contract and is how much you will pay upon lease return. It is not negotiable.

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What Can Happen if a Car Is Not Paid Off by the Mature Date of the Loan?

Depending on the reason why your loan isn't paid off by the end of the loan term or how many days have passed since your last payment, you might not suffer any repercussions or your lender might repossess your vehicle. Various situations can affect your loan payoff, such as late payments or a loan deferment or modification, which amends your original contract.

Your Original Contract

If your car loan isn't paid off by the end of the loan term, you might have to pay late fees. If you're only late by one payment, make your payment within the lender's grace period. Review your loan contract to determine the cost of your late fee. To completely satisfy your loan, you must satisfy your entire loan balance, even if it means paying extra fees or more in interest because of late payments. If your payment is more than 30 days late, review your contract to determine when the lender can repossess your vehicle.

Payment Deferment or Changing Your Payment Due Date

If you have trouble making your car payment during the loan term, you can ask your lender to defer your car payments. Deferring a car payment allows you to skip one more loan payment, which is added on to the end of your loan. Payment deferments don't cause a repossession, but you'll increase the amount you pay in interest. Once your lender agrees to defer your payment, you won't pay late fees and the lender won't report the late payment to the credit bureaus. You can also ask your lender to change your due date. Obtain any agreements from your lender in writing.

Loan Modification

Your lender might offer to modify your loan if you can't make payments because of financial hardship. Acceptable proof of financial hardship may differ by lender, but often include disability, unemployment or a loss, whether it is your home or spouse. A loan modification allows your lender to adjust the terms of your loan, usually by extending the loan term to decrease your monthly payment. A loan modification changes the terms of your original contract, but you'll sign a new contract with your lender. You'll likely also pay a higher interest rate.

Repossession

If you don't make your car payment and don't discuss your options with your lender, it might repossess your vehicle. If you didn't sign any paperwork to modify your payment agreement and you're outside of your payment grace period, your lender can seize your vehicle and resell it. You'll have an opportunity to purchase the vehicle back from the lender by paying your past due amount, late fees and repossession costs. Otherwise, the lender will sell the vehicle and you'll either have to pay the difference in sales price and loan balance or the lender will return any profit to you after paying off your loan balance.

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Formula for Car Payments

Many buyers end up paying more for a car because they do not understand the concept of financing. A difference of 1 percentage point in the interest rate will change a car payment; you need to know how much. Extending payments over a longer term will lower the monthly payment but result in more money paid overall.

Being Prepared

Using a car payment formula to plug in the total borrowed, interest rate and number of payments helps you be prepared when negotiating the vehicle price with the dealer. Rather than relying on dealer financing, you can calculate your desired monthly payment, then seek financing before entering the dealership. Relying on the financing from the dealer can cost more than financing you arrange for yourself.

Comparisons

Use the car payment formula to see how the different parts of the formula affect financing. Plugging in different amounts for the down payment will show the impact on your monthly payment. Inserting different interest rates shows the increase (or decrease) in the cost of financing your loan, which has a direct impact on your payment. Considering these factors can help you determine the loan term that fits your budget.

Interest Rate vs. Rebate

As a buyer, you may be offered the option of a low interest rate or a cash rebate. By using a financing formula, you can insert different values to see which way is most cost-effective. Consider how long you plan to keep the car; it is better to take the cash if you won't have the car more than three years.

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Auto Refinancing Without Perfect Credit

Refinancing an auto loan to take advantage of lower interest rates can be a wise move. However, you can only take advantage of these lower interest rates if your credit score is good or at least above average. If you have a bad credit score, your chances of getting a better car loan than that which you currently have is low.

Car Refinancing

When you refinance a car loan, you take a new loan from a new lender to pay back the outstanding debt on the current loan. These loans are only justifiable when you get a new loan with significantly better interest rates than your current loan. For example, if you have a $20,000 loan with a five-year payment term at 10 percent APR, you pay about $425 per month. A new loan that charges you 6 percent APR will lower your payment to $400 per month, according to Bankrate.com.

Credit Scores

Your chances of getting a more competitive auto loan largely depends upon your credit score. The FICO score, one of the most widely used scores, ranges from 30 to 850. The Federal Citizen Information Center reports that a good score is anything over 700, while anything under 600 is considered low or subprime. However, lenders establish their own requirements, and some may require you to have scores about 750 or higher before you can get the best rates.

Shop Around

In the marketplace of lenders and borrowers, no two situations are alike. Different creditors use different factors to evaluate a borrower, and each lender has its own rules about what to offer when refinancing an auto loan. If you're rejected by one lender or offered terms that aren't acceptable to you, seek out other lenders. Remember, each lender competes against the others in an attempt to win customers, and the wise consumer uses this competition to find better offers.

Improve Credit

If your credit score is too low, you have almost no chance of getting a competitive car loan. However, you can increase your score and, once it is high enough, take advantage of a better loan. The Federal Trade Commission recommends some simple steps to raise your credit score. Start by paying all your bills on time, all the time. You should also reduce your credit card debt if you have any, preferably by paying off any balance at the end of each month.

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How to Calculate Your Monthly Auto Loan and Insurance

If you're planning to buy and finance a car, prepare to make monthly payments for the next 36 to 72 months, depending on your chosen loan term. When you take on a new auto loan, remember that you also have to pay car insurance for the vehicle. So, estimate that amount as well and add the two figures together to get your total car-related expense each month.

Instructions

Calculate Auto Loan

1

Determine your monthly auto payments using the Cars.com auto loan calculator. Enter all details about the transaction, including the price, down payment, rate and sales tax you plan to build into the loan. The monthly payment displays at the bottom of the page. You can update any of the terms to see how the payment changes.

2

Use the Edmunds auto calculator to find out your estimated car payment. With this tool you can retrieve the exact vehicle you wish to buy to upload the price automatically and calculate the payment. After finalizing the price and pressing "Go," you can then provide the other terms, including your title and registration fees and any dealer cash incentives. The calculator also integrates your trade-in, if applicable, before determining your final monthly payment.

3

Calculate the car loan payment using Bankrate's amortization schedule auto calculator. Enter the basic terms of the loan (term, amount and rate) to figure out the payment. You also can click "Show/Recalculate Amortization Table" at the bottom of the page if you want to see exactly how the loan balance decreases with each payment.

Estimate Car Insurance

4

Call your current or pending insurance company to get a quote for your new vehicle. If this is a new car insurance policy you'll also have to provide your driver's license number, address and other personal information to get an accurate quote.

5

Determine your total premium for the policy and whether the quote is for six months or a year. Assume, for example, your policy costs $700 for six months.

6

Divide the premium amount by the number of months to determine the amount you'll pay to the car insurer each month. In this example, it's $116.67 per month ($700/6).

7

Add any monthly installment service fee charged by the insurer. Sometimes the insurance company charges you for the convenience of paying the bill monthly instead of all at once. If the fee is $3, for example, your total estimated auto insurance payment would be $119.67 per month.

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How to Sell a Car to a Private Person

Selling a car privately, rather than to a dealer, can help you obtain more money for the vehicle. Buy you must invest time into preparing the car for sale, advertising it and dealing with potential buyers. Important considerations include the amount of your asking price and the minimum offer you will accept. With these two figures in mind, you can prepare to negotiate the sale of your car to a private person.

Instructions

1

Clean the vehicle inside and out and perform any minor repairs, or those that you deem necessary to make the car salable. Gather maintenance records to show prospective buyers.

2

Consult a used car value resource such as NADA.com or Kelley Blue Book (see Resources) to learn what your car is worth. Look at the private party value to determine a sales price in relation to the condition of your car, such as "Excellent," "Good" or "Fair."

3

Advertise the vehicle in your local newspaper classifieds, online classifieds or auto sales publications. Include a brief description of the vehicle, the asking price and your contact information.

4

Respond to inquiries regarding the vehicle. Meet with them to show the car. Allow a test drive, but ask to see a driver's license and accompany them on the drive.

5

Put the terms of the sale in writing in a "Bill of Sale." This will clear up any confusion and finalize the selling price. Sign it and have the buyer sign it in the presence of a witness or notary who also signs it.

6

Request a certified check from the buyer or ask to meet at his bank to complete the transaction. Make sure you have legitimate funds in your hand before allowing the buyer to take ownership of the car.

7

Sign the title to transfer ownership to the buyer. Call your insurance company and cancel coverage as soon as the buyer takes ownership.

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Depreciation of Cars and Vehicles

One of the biggest drawbacks of buying a new car is that it is subject to large amounts of depreciation. As soon as you drive your car home, it depreciates a bit from its original value. As a car owner, it is important for you to consider the effect of depreciation on your vehicle.

Auto Depreciation

While every car is a little different, the majority of vehicles depreciate rapidly in value. As a rule of thumb, you could figure that your car will depreciate 15 percent per year from the time you buy it. After a few years, the vehicle will be worth much less than it originally was. If you try to sell the car, it will usually not fetch a price that will pay you back for the amount you owe on the loan.

Upside Down

A common issue that car owners have to deal with is getting into an upside down position on their car loans. When you take out a vehicle loan for a new car and the value of the car drops, you now owe more than what your car is worth. The amount of principal that you pay on your loan probably will not help you keep up with depreciation. If you crash the car, this could lead to having to pay more than what the insurance company gives you for the loss.

Protecting Against Depreciation

Even though you cannot stop depreciation on your car, you can help protect yourself from it. If you wreck your car and have to pay more than what the insurance company gives you, it could be financially devastating. For this issue, purchase gap insurance when you get your auto loan. Gap insurance pays you for the difference between what your auto insurance pays and how much you owe on your loan. This ensures that you will never owe any more money if your car is totaled.

Value versus Reliability

Many people who plan on keeping a car for many years tend to be concerned with how each car retains its value. Instead of worrying about the value that it keeps as it gets older, you may want to be more concerned with how it holds up. If you have to spend a great deal of money fixing the car up every year, the value will not help you much. In this case, choosing a car that is reliable and can run well once it takes on a great deal of mileage will benefit you.

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Car Buying Advice & Tips

Buying a car, whether old or new, is a substantial financial investment. You want to get the best deal you can when you purchase your vehicle, and you want to be sure the vehicle is going to be reliable. Armed with some knowledge, a few car-shopping tricks and by taking the time to shop around, you can increase your chance of coming away with a vehicle you can afford that will serve your needs for years to come.

Know Your Credit Score

Many car dealers will use a poor credit score as a way to come up with financing terms that are beyond your means. If your credit score is poor, you may run into difficult financing terms. Buyers with superior credit scores are more likely to get favorable finanancing terms, like 0 percent financing. Obtain a credit report, and be ready to correct errors and problems before seeking a loan.

Stay Calm

Don't let on that you need to make a deal. Let the salesman believe you are willing to walk away if you don't get the vehicle you want. Even if you've been turned down elsewhere, keep this information to yourself. Show confidence and be certain about what you're looking for. Make the salesman work to satisfy you. Regardless of how desperate you are, let the salesman know you'll walk away if the deal isn't right.

Trade-Ins

Don't mention a trade-in until after a deal has been reached. If you state right away that you have a trade-in and allow the car dealer to figure it in up front, you're likely to have figures juggled to take the trade-in into account. By waiting until the figuring is finished and you have a final figure, you can bring your trade-in into the equation and work from the bottom-line deal. This can lead to better terms for you. Know the value of your trade-in before you enter a dealership. If you need repairs, consider having your own mechanic estimate the cost of those repairs, giving you a bargaining tool when the dealership has lets their mechanic start deducting repair costs from the trade-in value.

Target Pricing

When purchasing a new car, your target price (what you want to pay) should be below the manufacturer's suggested retail price. This price appears on the sticker. Many people begin negotiating from that MSRP, but this should not be your starting point. Research any discounts the dealer may be offering and use that price as your starting point for negotiating. Aim for 1 to 5 percent over the dealer. Figure the dealer's actual cost by finding the dealer invoice price and subtracting dealer sales incentives from this figure.

Used Car Buying

Used car purchases can be challenging. When possible, always take someone with you who has knowledge about cars. It may even be worth the expense of taking a trained mechanic if it saves you from purchasing a car that will break down on you shortly after purchase. Do not enter into a spoken contract regarding any warranty or guarantee the seller makes. If the seller of the car guarantees it is in good work condition, get this in writing and signed.

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Are There Internet Cosigners to Help With a Car Loan?

It is highly unlikely you can find a co-signer using the Internet, as co-signing a car loan presents great financial risk. Your co-signer should be someone who trusts you and can make your car payments if you cannot. Consider the risks involved for a co-signer so you can decide whom to ask. Other purchase options may exist if you cannot find a co-signer.

Co-Signer Liability

A co-signer has the same payment and loan responsibilities as the person for which he co-signs. Payments must be made on time. Any late payments are reported to the credit bureaus, which is damaging to either person's credit history. If you are unable to pay your loan, the co-signer must pay for you or the vehicle will be repossessed, which causes significant credit damage. The co-signer might also have trouble pursuing an additional loan or piece of credit because of the recently opened account on his credit history, even though he is not the registered owner of the vehicle.

Application Process

A co-signer applies for the loan with you. She must provide her Social Security number, employment and address information, income and date of birth. A copy of the co-signers driver's license number and signature is also required. Once the application is approved, the co-signer must read the lending contract over and sign it, just as you do. Because a co-signer must provide her personal information and faces significant financial risk by securing someone else's loan, it may prove difficult to find one from a source like the Internet.

Whom to Ask

You may find that relatives or close friends are uncomfortable co-signing your loan. Ideal co-signers include parents, aunts, uncles, cousins, siblings or close friends. The person you ask must have good credit, a stable income and address history. Your co-signer should be local to you, but some dealers or banks can send a contract to a co-signer in another state to obtain a signature. Don't be afraid to contact close friends or family that aren't in your state if your bank allows this.

Other Options

If you're a student, a first-time buyer or a recent graduate, a bank may have a program in place to help you obtain lending. As long as you are employed and don't have any previous or negative credit, a bank might extend a loan to you. You can check the websites of various car manufacturers and local banks to view credit offers and programs. If you can't find suitable lending options, consider purchasing a vehicle from a buy-here, pay-here lot. These lots do not check credit but require money down.

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Is There a Legal Way to Get Out of an Upside Down Car Loan?

An "upside down car loan" is a term used to describe a vehicle loan that exceeds vehicle trade or sales value. You can get out of your upside down car loan legally, although your options may not prove favorable if you have to provide a down payment or cash out-of-pocket to do so.

Vehicle Value

Before exploring your options, determine the value of your vehicle. Your car may warrant more than you think. Use Edmunds.com and the Kelley Blue Book website to gauge your private sale and trade-in value. The NADA Guides website also offers trade values. Carefully input your information, including mileage, location and options to gauge a realistic value for your car. Check the values from all websites and determine a median value, as no two guides offer the same appraisal value. Search classifieds for like-cars in your area to determine market value; some vehicles may warrant a higher value because of availability or options.

Sell Your Car

You can sell your vehicle even if its loan isn't satisfied. You must pay your lender for the vehicle's remaining loan balance after the car's sales price. Call your bank to obtain your car's payoff amount. If you want to get rid of your car, providing the extra money to pay off the loan is likely worthwhile. You'll end up paying the negative equity over time while your vehicle's value only decreases. Budget for extra money you'll have to pay before selling your vehicle.

Purchase Another Vehicle

Most states offer tax savings when buyers trade in a vehicle toward another purchase. Tax savings are beneficial in areas with higher tax rates. For example, if your trade value is $10,000 and you live in an area with a 7 percent tax rate, you'll save $700 in tax charges. If pursuing a new-car purchase, many manufacturers offer rebates, which further help to cover negative equity. You can limit your down payment amount for a new loan or decrease your negative equity completely if purchasing a vehicle with rebates and take advantage of tax discounts.

Lease a Vehicle

Leasing a car offers the opportunity to terminate your current loan for an affordable monthly payment. With good to excellent credit, you can expect to obtain a lease approval that's equal to 120 percent of your new car's value. You may not have to provide a down payment, but should speak to a dealership to find out if this option is possible. If you aren't able to come up with the down payment required to sell or trade your car, leasing offers an alternative option. At the end of the lease term, you can walk away from the lease without concern for market value or negative equity.

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Can You Transfer an Auto Loan to Another Person?

People who sign their names on the dotted line of an auto loan must fulfill the terms of that loan until they pay off the vehicle unless they can find someone who is willing to purchase their vehicle. Even so, car owners may put themselves in a financial fix if they take shortcuts to transfer their loan obligations to another person.

Titles

Auto lenders hold the titles to borrowers' vehicles until they pay off their loans. Therefore, you generally can't transfer an auto loan to another person because you need to transfer the title to that person as well. An Edmunds article titled "What To Do if You Can't Make Your Car Payment" says an auto loan must be paid off before a title can be transferred to a new owner, which is usually handled by selling the vehicle to the new owner.

Swapping Loans

According to Cars Direct, you can swap loans even though you can't directly transfer your auto loan to another person. A car owner swaps a loan by having the person who wants to buy his vehicle take out another loan for the purchase price and giving the money to the owner. The owner uses the money to pay off the balance of his auto loan and turns the car over to the new owner. The new owner eventually pays off the loan he took out to pay the purchase price and takes title of the vehicle since the previous owner paid off the original loan.

Payment Agreements

Avoid the temptation to allow someone to make your auto loan payments without requiring that person to take out his own loan and take title to the vehicle. In such cases, the original loan remains in your name. Therefore, your credit score will drop if the other person fails to make payments or fails to pay on time. Furthermore, you put your vehicle at risk of repossession if that person fails to pay off your loan as agreed.

Considerations

You protect yourself from financial hassles and personal conflicts if you require someone who wants to buy your vehicle to get a loan in his own name. A lender will subject the buyer to a credit check and income verification to ensure the person is creditworthy and can afford to pay the loan. Furthermore, it's the lender's problem if the buyer gets a loan and doesn't make the payments. That spares you the hassle of trying to retrieve late payments yourself.

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Why Not Buy a New Car?

Maybe you've just returned from a car show and, heady with excitement, you are more than ready to get yourself your favorite model. Because getting a new vehicle is on your mind, every television commercial or print ad you see is beckoning you to put yourself behind the wheel of a brand-spanking new car. The temptations are real; after all, you need a car to get though life. However, the reality is there are plenty of reasons why you shouldn't buy a new car.

Leasing May Be Better

Car buying expert and radio personality Adam Goldfein says that if you fall into three categories, you should not only consider leasing a new car versus buying one, you must lease because it always will work out better mathematically for you. The three conditions to lease rather than buy are if you have good credit, if you drive less than 20,000 miles per year and if you plan to get a new car within four years. If you can say yes to all three conditions, you should not buy a new car. However, if you cannot say yes to all three conditions, then you should not lease. That still doesn't mean buying new is your only option; you can buy a certified pre-owned vehicle, which is a used car with a warranty, or you might be able to hang onto your present car longer. Almost any car can get you around safely up to 200,000 miles, according to Des Toups, senior editor at MSN Money.

New Cars Are Expensive

Perhaps the most obvious reason not to buy a new car is the expense. If you only look at the sticker price of the new car when determining whether you should buy, you only see part of the equation. You also have to pay for insurance that is probably going to go up with the purchase of a new car. You also have to figure in gas, maintenance and repairs. True, you have those expenses with your present car, but if you don't include those costs in your budget, you could be getting in over your head. Also, keep in mind that some cars depreciate faster than others. You can find reliability studies from Consumer Reports and J.D. Power and Associates.

New Cars Depreciate

A new car depreciates the second you drive it off the lot. Unless you are paying cash for the car or are putting down more than about 20 percent of the cost, you are probably going to be underwater on the car, meaning that you owe more on the car than it's worth for probably a year or more. You'd be in pretty bad shape if you got into an accident during this time that totals your car because your insurance company pays the value of the car, not what you owe. Or, perhaps you lose your job and can no longer afford the car payments and have to sell your car. Again, you probably can only sell the car for what it's worth, not what you owe. To protect against those scenarios, you can purchase GAP insurance, which covers the difference between what you owe on the car and what the car is worth. Of course, if you can only afford a small down payment, if you can only afford a car with a 60-month financing term or if you are rolling negative equity from your last vehicle into a new one, maybe you should not buy that new car.

Tips for Buying New

If you are still dead set on buying a new car, be as informed as possible. If you don't know what you're doing, you could be making some costly mistakes. For example, unless you are buying your first car ever, you probably already have a vehicle. Not knowing the value of your present car before you put it up for sale or trade it in can cost you some bucks. The most important factors in determining your car's value are how old it is, how many miles are on it, the make and model of the car and what sort of extras it may have. Kelly Blue Book, Edmunds and Auto Trader can all give you a good idea of the value of your car. Always be prepared by reading reviews of the car you want and the best price the manufacturer is offering for the car, including special deals and rebates, before you set foot in the dealership.

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I Have No Credit and I Want to Buy a Car

It takes credit to get credit, especially if you need to borrow a lot of money for a big purchase like a car. You may be able to piggyback on someone else's good credit rating for your auto financing. Otherwise, you can build your own credit rating to qualify for a vehicle loan on your own merits.

Co-Signers

Banks and finance companies usually let you use a co-signer if you have no credit history of your own. The co-signer needs a good enough credit history to qualify for the auto loan. That person is legally responsible for repayment if you default, so you ruin your co-signer's credit if you make late car payments or stop paying altogether. The other person is also responsible for repossession costs and the difference between what you owed and the amount of money the bank gets from the car's resale, Bankrate columnist Steve Bucci warns. The negative information shows up on your credit reports, too, damaging your fledgling credit history. Use a co-signer only if you are confident you can make timely payments.

Establishing Credit

You can delay your car purchase for a year and concentrate on building some credit while saving up for your down payment. Putting down a lot of money makes it easier to get a loan, because the financed amount is lower. Open an account with a gasoline company or retail store, as they are easier to get than major credit cards like Visa or MasterCard, the BCS Alliance financial site explains. Get a secured credit card, if necessary. Banks give major brand cards in exchange for a deposit that covers your credit line, according to Bankrate writer Pat Curry. Use your new accounts for 12 months, always paying on time, then look for a car loan.

Checking Your History

You may have a credit history, even if you never opened an account, due to credit bureau errors. Experian, Equifax and TransUnion make mistakes regularly, with errors on up to 80 percent of credit reports, Bankrate warns. AnnualCreditReport.com is a consolidated website run by the three bureaus under the Fair Credit Reporting Act. You can get free copies of your reports through the site once each year, according to the Federal Trade Commission. Look for incorrect information, which could be for someone with a similar name, or even a sign of identity theft. Dispute questionable items with the bureaus through their website forms before applying for your car loan.

Refinancing

You may find a lender who is willing to take a chance on you, even though you have no established credit, in exchange for a high interest rate. Take the loan temporarily, then refinance it once you build up an excellent payment record. You can save hundreds of dollars with a better interest rate, Edmunds automotive site writer Philip Reed advises. Check your credit reports before searching for a new loan to ensure your history is accurately reflected.

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