Can a Car Be Repossessed if the Buyer Dies?

One of the last things you expect when you finance a new car is to pass away before you have the opportunity to pay off the vehicle. However, this is exactly what happens for some customers. An accident or unexpected illness could leave your family struggling to pay off the remaining balance of your auto loan, or it may face repossession.

Car Payments

When an individual dies before paying off his auto loan, someone has to continue making payments on the vehicle. The auto lender will not automatically repossess the car after receiving notice of the borrower's death, but it has the right to do so if the family misses car payments. Depending on the value of the assets the deceased left behind, the will executor can sometimes make monthly payments to the lender through the decedent's estate until the family determines who should inherit the vehicle.

Repossession

Don't assume that your family members would be willing to take over your car -- and its payments -- in the event of your death. If your loved ones already have a vehicle, they may not want to take on another car and insurance payment each month. In the event no one in a family wants the deceased individual's car, the family has the right to contact the lender and request that it pick up the vehicle through voluntary repossession.

Auto Loan Deficiency

When a lender repossess a car after the death of the borrower, it sells the vehicle and applies the sale proceeds to the loan's outstanding balance. If the sale does not net enough money to cover the remaining loan balance, the lender has the right to pursue the remaining debt. An auto lender cannot force the deceased's family to make payments on the deficiency, but it does reserve the right to file a claim against the deceased's estate with the probate court handling her affairs.

Payment Responsibility

Family members have no legal responsibility to the car or its payments. The only person obligated to make payments was the deceased. Because of this, your refusal to make payments on your deceased loved one's auto loan will not negatively impact your credit rating.

An exception to this rule applies if you cosigned for the loan. In the event the primary borrower cannot pay, the cosigner is legally responsible for paying off the debt. Should the bank repossess the car as a result of missed payments, the cosigner's credit report will reflect the missed payments and, ultimately, the repossession.

Credit Insurance

If the decedent carried credit insurance on her auto insurance policy, the insurance company will pay off the remaining balance of the loan in the event the borrower unexpectedly dies. This spares grieving family members the stress of having to make car payments during a trying time. Once the insurance pays off the vehicle, the individual who inherits it does so free and clear, and the lender cannot repossess the vehicle.

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Facts on Making Car Payments After a Car Accident

A vehicle loan is a legally binding contract. When you sign for a loan, you assume responsibility for the funds loaned for the car purchase. Through this financial assumption, you are obligated to repay that amount, according to the terms of the contract. Unfortunately, anything that happens to the vehicle once you purchase it does not negate your legal responsibility to repay the loan, even if the vehicle is involved in an accident.

The Facts

Upon financing a vehicle, you authorize a lender to purchase the car. You then pay the lender for the amount of the vehicle, plus interest, over a period of time. Because the lender has already paid for the car, the lender remains in possession of the car title until the balance of the loan is paid in full. This gives the lender the right to reclaim the vehicle if loan payments cease. If your car is in an accident and requires repairs, you must continue to make payments on the vehicle. The same holds true even if a car accident results in the vehicle being damaged beyond repair.

Considerations

Many car accidents are minor and don't require repairs. However, in the event that repairs are necessary, and the cost to repair the vehicle exceeds the vehicle's value, your insurance company will "total" the car. When this occurs, the insurance company will recover the car and send you a check for the car's current fair market value. The fair market value of the car may be less than you currently owe on the vehicle. This may mean that you will still be making payments on a car you no longer possess.

Risks

Failure to make payments on a car following an accident, whether the car is operational or not, can result in repossession. The lender will then attempt to sell the vehicle to recover the unpaid balance of the loan. In the event that the full balance is not recovered, or the vehicle itself is not available for recovery, your lender may file a lawsuit against you for the outstanding amount. Provided that your state permits the practice, a deficiency judgment can be levied against you. If you are employed, the lender may request a wage garnishment through the courts until the debt is satisfied.

Prevention

If you owe more on your car than its fair market value and are concerned about the possibility of an accident, opt for gap insurance. Gap insurance can be purchased through your lender or car insurance provider. In the event that your car is totaled in an accident, the gap insurance policy will kick in to cover the unpaid loan balance after you receive the insurance company's fair market value price for the car. Many insurance providers will require you to maintain collision and comprehension coverage on the car to be eligible for gap insurance.

Effects

Continuing to make regular payments on your car after an accident will ensure that you retain legal possession of the vehicle. If, however, you default on the loan and the car is repossessed, the repossession will appear in the "Public Records" section of your credit report. A subsequent deficiency judgment will also appear on your credit file. Judgments and repossessions have a negative effect on your credit score and will remain on your report for years to come --- even if you pay the full balance owed to the lender. Additionally, acquiring financing for future vehicles will prove difficult, if not impossible, with a repossession on your credit report.

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How To Lease a Scion

Scion is a division of Toyota that uses Toyota Financial Services for leasing. Good to excellent credit is required for lease approval. Scion typically offers a three-year, 36,000-mile lease and a 12,000-miles-per-year allowance, which is equivalent to Scion's bumper-to-bumper warranty. You can lease a Scion for a relatively low monthly payment, as the Scion website states that the vehicles are sold and leased for "Pure Price," or no-hassle pricing, meaning the lowest prices are offered from the start.

Instructions

1

Go to Scion.com to see the monthly Scion leasing specials. Click on "Buying and Leasing" from the main Web page to review specials and read the fine print to determine how much money you can expect to put down, the model the lease is advertised for, and the term and mileage allowance.

2

Click on the Scion you like to find out more about it. This can help you learn what options and colors are available before you enter a dealership. Click on "Find a Dealer" to see a list of dealers in your area and their contact information.

3

Go to a Scion dealer and speak to a sales representative. Ask to test-drive the Scion model you are interested in and mention any options you have chosen from the Scion website. Work with your salesperson to find a Scion you would want to lease.

4

Fill out the Toyota Financial Services credit application by providing your name, address, Social Security number, date of birth and employment information. Your application is sent in electronically to Toyota Financial Services, and you should have an approval almost immediately.

5

Go over the monthly payments, the money down and the term information before you sign your paperwork. Pick up the Scion that day if the dealer allows, or at a time convenient for both you and the dealer.

6

Give your money down to the finance manager who completes your paperwork with you at the time you pick up your car. Sign your Toyota Financial Services leasing contracts and all motor vehicle paperwork, which the Scion dealer will provide. Your Scion salesperson will handle your car insurance for you before you leave in your new car, or within the time frame allowed by your state.

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The Truth About Zero Percent Financing & New Cars

Car companies and dealerships love to aggressively promote their best deals. Many of these deals include zero percent financing on a new vehicle. However, there's a lot the advertisements don't tell you about these deals, and what they do tell you is buried in fine print. Oftentimes, deals such as zero percent financing come with many other strings attached.

Credit Requirements

Perhaps the biggest misnomer about the car offers you hear advertised is that they're not actually available to everybody. The fine print of car advertisements tells you the truth -- namely, the offer in question is only available to people with excellent credit scores. If you fall outside of this group, not only do you not qualify for offers such as zero percent financing, but you may end up paying far more than you expected.

Financing Terms

Another item hidden in the fine print of car advertisements is specific criteria that must be met in order to qualify for the best offer. These requirements include a specified down payment amount and length of term. A zero percent financing offer might come with a stipulation that you must pay off the car within three years, whereas a promotional rate with finance charges may require you to finance the car for five years or more. The latter can be particularly devastating, especially if the contract includes a penalty for paying early.

Dealer Financing

When a dealer makes a special offer to you, such as zero percent financing, one of the requirements is that you must finance the car directly through the dealer's bank. If your workplace has a credit union, or if you have a strong relationship with a different bank, you won't be able to take advantage of your connections. Also, the dealer's finance company may have policies that are totally different from what you're used to. Since you won't get to find out the inner workings of the company until you sign on, it's possible that you could become stuck in an untenable situation for years to come.

Hidden Costs

Zero percent financing sounds like an unbeatable deal, but according to the Consumer Credit Counseling Service of San Francisco, it comes at a cost. While the dealer will be happy to give you a car with zero percent financing if your credit score is excellent, the dealer will also be happy to overcharge for items such as extended warranties and application fees. Furthermore, zero percent financing offers aren't available on all cars. The car of your dreams might be subject to a different promotional rate, which can mean paying thousands more in finance charges than you planned.

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When Someone Dies What Happens to Their Car Loan?

When an individual passes away, his possessions are passed on to someone else according to the specifications of his will or trust documents. If that individual has debt, it must be addressed before possessions can be passed on to his heirs. One of the most common debts in this situation is an auto loan.

Paying Off Loan

One of the options available to the family members of a deceased individual in this situation is to pay off the loan. If the deceased individual left a sizable estate to his beneficiaries, they could use part of that money to pay off the loan. The family can keep the car without having to make ongoing car payments if it chooses this option. The family members can also pay the loan off with their own money if they want to keep the car.

Assumption

Another option that the family members of the deceased individual can pursue is an assumption. An assumption is a process that involves taking over the loan for the individual. The remaining family members can come forward and try to assume the loan. For this process to work, the family members will have to prove that they are creditworthy. The lender must approve the new borrowers before the assumption can take place.

Turning Over the Car

In some cases, the remaining family members may not want to keep the car. When this happens, the family can turn the car back in to the dealer. The lender repossesses the car and take legal ownership of it. The lender then sells the car at an auction to try to come up with the money that it is owed for the car loan. If the lender does not sell the car for the full balance of the loan, it bills the estate for the remainder. (See References 1)

Insurance Payoff

Another scenario that could occur is that an insurance policy could pay off the car loan. When an individual purchases a new car, he has the opportunity to purchase credit life insurance on the loan. With this type of insurance, the insurer will pay for the remainder of the loan balance if the insured passes away. When this happens, the surviving family members get to keep the car after the insurance company has paid off the bill.

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How to Get an Auto Refinanced With Bad Credit

If you are someone with bad credit who purchased a vehicle that has a high monthly payment, refinancing is an option that you might want to explore. Getting an auto refinanced is one way to reduce monthly payments while lowering your interest rate. While the process of getting an auto refinanced with bad credit might seem a little daunting, it doesn't have to be difficult and your effort will be rewarded in the long run.

Instructions

1

Obtain a recent credit report with your credit score. Before applying for any loan it is important to know your credit score and to verify that all information being reported to credit bureaus is accurate. Dispute any information that you believe is not correct and pay off any debts you can to help raise your credit score before applying with a company to refinance your auto loan.

2

Write or call the lender currently financing your vehicle and request the pay off amount. The lender will mail you a letter with the exact amount currently owed on your vehicle. This letter will be used by the auto refinancing company to help them approve your requested loan amount. While most refinance companies will contact your lender directly to verify the amount owed on the vehicle, having a pay off amount in writing will help speed up the lending process.

3

Get copies of check stubs and/or tax returns. Proof of employment will be necessary to apply for a loan to refinance your vehicle. If you are self-employed, most lenders will request your last two tax returns with the Schedule C. If you are employed by a company that issues a W-2, you will usually need to provide two check stubs and/or your last W-2.

4

Contact banks and lenders that specialize in bad credit auto refinancing. When it comes to refinancing an auto loan, the original lender will rarely be willing to refinance their own loan. Only use lenders that have been recommended by friends or family or that have good records with the Better Business Bureau and your state's Attorney General. When contacting these lenders, ask what is the usual minimum credit score that they will approve. While most lenders also consider your ability to repay the loan, knowing if your credit score meets the minimum requirement will help you avoid applying for a loan that you will probably not qualify for.

5

Complete your application over the phone or by fax. If your loan to refinance your vehicle is not automatically approved, be sure to call to follow up in two or three business days. Return all requested documents quickly, and if your auto refinancing application is denied, do not be afraid to find out why. In some cases you may be able to have your loan reconsidered if the decision to deny the loan was based on information that you can prove was incorrect.

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The Laws on Collecting on a Defaulted Car Loan in North Carolina

A loan for a car is usually documented and secured by both a promissory note and a document making the car collateral for the loan. The lender can enforce payment for the loan by repossessing the car and also by suing the borrower if there is a default on the note. North Carolina state law regulates such legal actions within the state.

Repossession of Car

North Carolina state law permits the lender to seize the car that was made collateral for the loan by repossession. Such a repossession must not breach the peace, meaning that no use of violence is permitted, nor breaking and entering into the borrower's residence. Repossession is allowed for any default of the promissory note, including any missed payments or not maintaining required insurance. The lender does not have to give any prior notice or warning before repossessing the car.

Deficiency Judgment

After a car is repossessed, the lender has the right to accelerate the loan balance. This means that the full balance on the loan becomes immediately due and payable. The lender can also add costs to this balance. The lender will notify the borrower of this amount and if the borrower does not reclaim his car by making this payment, the lender then can sell the car. The lender will apply the proceeds from this sale to the loan balance. For any amount still remaining, called a deficiency, the lender can sue the borrower and obtain a deficiency judgment.

Enforcement of Judgment

The lender who obtains a deficiency judgment can seek to enforce payment of such a judgment by the borrower. North Carolina law provides that any properly obtained and filed judgment against a debtor automatically creates a lien on the debtor's property in favor of the creditor. This includes money, personal and real property. However, state law restricts how a creditor can enforce the judgment. North Carolina does not permit wage garnishment to enforce a judgment for a car loan. The law does allow seizing money in a bank account or other property belonging to the debtor, subject to certain state-mandated exemptions.

Exemptions

While wages cannot be garnished from the debtor's employer, money including deposited wages can be seized from the debtor's bank accounts. However, money from retirement or pensions, including Social Security, is exempt from seizure. Funds in a college savings plan account or an IRA account are also exempt. Money received from a lawsuit for personal injury or wrongful death is exempt. The debtor can exempt another owned automobile up to $3,500 and personal belongings up to $5,000. If the debtor does not claim a homestead exemption, he can exempt any otherwise non-exempt funds or property up to $5,000.

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Lien Sales & Vehicle Tow Laws in California

In California, the state's consumer protection laws require towing companies and repossession agencies to comply with the California Vehicle Code and California Department of Consumer Affairs' regulations. When car buyers default on their loan obligations, lenders have a right to repossess their property and sell them through private or public lien sales and auctions. However, they must comply with the state's notice laws requiring notification to buyers of their rights to repurchase their vehicles by settling their past-due accounts.

Repossession Agencies' Duties

Repossession agencies must notify local law enforcement agencies within one hour after repossession. Repossession agencies also have to provide car buyers with notice within 48 hours after they repossess their vehicles. However, lenders who perform their own repossessions without hiring a third-party repossession agency do not have to provide the 48-hour notice to car buyers.

Opportunity to Cure

California law allows creditors to seize vehicles and sell them if owners do not pay their debts, towing charges and late fees. Car buyers must also pay release fees to local law enforcement agencies before they can reclaim property from impound lots. According to the California Rees-Levering Automobile Sales and Finance Act, known as the California Finance Lenders Law, creditors must provide car buyers with at least 15 days' written notice to reclaim their vehicles. Within 15 days, a car buyer has a right to pay her delinquency and reinstate her loan obligations.

The California consumer protection law also allows lenders to sue borrowers for deficient balances remaining on their loans after they sell their vehicles. However, the right to sue for a deficiency judgment is limited to lenders who used the mandatory California disclaimer language. The disclaimer notification must be prominently placed in sales contracts in 10-point, bold-type font notifying buyers of a lender's right to sue for the deficiency.

Lien Sales and Deficiency Judgments

Lenders must conduct their lien sales in a commercially reasonable manner and provide written notice at least 15 days in advance of any sale. The written notice must notify the borrower of the time and manner of sale. If the buyer resolves the debt after the date of publication, the lender may return the vehicle.

Licensing Regulations

California has mandatory licensing requirements for repossession agencies and vehicle loan lenders. The California Finance Lenders Law requires lenders to obtain proper licensing to conduct financial activities. Generally, lenders must obtain a $25,000 surety bond, have at least $25,000 in net worth and have no criminal history or prior records based on fraud charges.

Repossession agencies and tow companies must obtain proper licensing from the California Bureau of Security and Investigative Services. The state requires repossession agents to undergo criminal background checks through the California Department of Justice and FBI. Repossession agencies are legally required to show their licenses, if requested, to consumers and must always carry their California identification cards.

Considerations

Since state laws can frequently change, do not use this information as a substitute for legal advice. Seek advice through an attorney licensed to practice law in your state.

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Used Car Sales Laws in California

It is well established that cars generally are not good investments and lose value as soon as the buyer drives the vehicle off the car lot. New car buyers do not have to worry about latent defects that existed prior to purchasing the car since their new bill of sale provides them with warranties. With the enactment of California's lemon law in 2006, some used car buyers can have similar reassurances of operability.

Car Buyer's Bill of Rights

California's legislature enacted this bill to help buyers receive some consumer protections from licensed California car dealers. The law does not apply to commercial-use vehicles, off-road vehicles, RVs, motorcycles or vehicles sold by private individuals. California residents buying used cars from dealerships can have a two-day cooling-off period to cancel their bill of sale.

Invoice Accounting and Inspection Report

Dealers must provide both used and new car buyers an itemized accounting or price list for warranties, insurance and any other charges if the buyer obtains a loan to purchase the car. Dealers must provide written disclosures as required under California Civil Code Section 2982.2. Some of the protections under the certification requirements include the dealer's inspection report. It is illegal for a dealer to certify a vehicle that does not properly indicate an accurate odometer reading or that has suffered damaged. It is also illegal for the seller to withhold a complete inspection report from the buyer.

Certifications

Dealers are prohibited from charging excess fees for providing used car loans and must provide buyers with a "Notice to Vehicle Credit Applicant" disclosure document, which provides notice information to buyers about how credit scores are used, credit reporting agency disclosures and installment payment price disclosures.

Cancellation Within Two Days

Buyers have two days to cancel their sales transactions if they buy a contract cancellation option from a used car dealer. Used car dealers who sell cars that cost less than $40,000 must provide the cancellation option to purchasers for a limited fee. Car dealers may not charge more than $75 for the purchase price contract if the car does not cost more than $5,000. Additional caps apply to cars that cost more than $5,000.

Buyer's Rights

Buyers who purchase the cancellation option have until the end of the business day on the second business day to bring the car back for a full refund, minus the purchase price of the cancellation option. Dealers must provide buyers with a full refund of fees, including taxes, deposits, trade-in vehicles, registration fees and any other fees they charged the buyers if the buyers request a refund within the two days. Dealers do not have to refund the price of the cancellation option a buyer purchased. Dealers can charge a buyer the maximum fee for restocking the vehicle. Additionally, if buyers do not return the car within the two-day allowance, then dealers does not have to accept the vehicle but must provide a written notice of its non-acceptance.

Considerations

Since consumer protection laws can frequently change, you should not use this information as a substitute for legal advice. Seek advice through an attorney licensed to practice law in your jurisdiction.

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How to Sell a Car With a Lein

When you have a car that still has a lien on it, that typically means there is an auto loan on the vehicle that you have not yet paid off. Usually you are still making monthly payments on the vehicle when you have a lienholder on the car. It can be a challenge to sell a car with a lien because you do not actually have the title for the vehicle. The lienholder has it. Despite that challenge you can still successfully sell a car with a lien.

Instructions

1

Look at a recent statement for your auto loan to see if the pay off amount is listed. If your pay off amount is not listed, you can call the customer service number on the statement or visit the website on the statement to get your pay off amount.

2

Check the current private party value of the vehicle on the Kelley Blue Book website (see Resources). This will let you know how much your car is worth so you know how to price it.

3

Take your pay off amount and your value amount to determine if you owe more than the car is worth. If the pay off amount is a higher number than the value amount, you do owe more than the car is worth. Subtract the value amount from the pay off amount to see how much more you owe than it is worth.

4

Disclose that you still have a loan on the car in any ads you place to list the car for sale. You can place ads in the local newspaper and on the local Craigslist site. In the ad you can list that you want someone to take over the loan payments or buy the car outright, but you can't get the title to them until it is sent by the lienholder.

5

Contact your lienholder when you have a potential buyer to see if they will allow you to have someone take over the loan. Not all lenders will do this and those that do require the new person to pass the same credit requirements that you did. If you owe more than the car is worth, you may not be able to find someone to just take over the payments.

6

Complete a bill of sale with the buyer to transfer the ownership of the vehicle. If the buyer gave you money for the vehicle instead of taking over the payments, you need to send that money to the lienholder to pay the loan off so that you can get the title of the car. If you sold the car for less than you owe, you must be prepared to pay off the remaining balance at the same time. Once you get the title, you must sign it over to the new owner so that the new owner can get the vehicle registered in his name.

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Own Vs. Lease a Car

Leasing and buying a car both have their advantages and disadvantages. If you are in the market for a car, you should first consider how long you want to drive the car, your overall driving habits -- such as the distance you commute to work -- and your financial situation, among other things.

Overall Cost

Carefully compare the cost of leasing a car to buying a car with financing. For example, many car companies advertise a low monthly payment for leases, but require a large sum of money upfront for a down payment, not including taxes and bank fees. Compare the cost of the lease for its entire term to the cost of financing the same car. Some financing companies offer rebates or automatic cash discounts. Leasing is often based on the new car's sticker price. Without further negotiations or rebates, you may end up spending the same amount of money or more if you decide to purchase the car at the end of the contract.

Mileage

When leasing, you pay for the vehicle's expected depreciation. The depreciation amount is based on the term and mileage you choose for the lease. If you go over your lease's mileage allowance, expect to pay a penalty fee. Depending on the leasing bank and the mileage you choose, you can pay as much as 20 cents per mile for each mile that exceeds your allowance. If you pursue financing, you can drive your vehicle as much as you'd like. Mileage restrictions can prove problematic if your driving situation changes over the contract term.

Down Payments

A down payment has a bigger impact on a lease's monthly payment amount. For each $1,000 you provide for a down payment toward a lease, you can expect to pay $30 less per month. For a finance purchase, the difference is about $20 per month. You may be tempted to offer a larger down payment for a lease, but it is not worthwhile. In the event that you total your vehicle or it is stolen, your insurance company pays your lender for the car's market value. If leasing, you won't receive any of your down payment or vehicle's equity back. If financing, you receive the remainder of the vehicle's value after the loan is satisfied.

Lease-End Fees

In addition to over mileage and down payment fees, you may still have to pay at the end of your contract. Most leasing banks offer some form of wear-and-tear allowance for the lease term, which allows for light seat wear, light body scratches or some tire wear. The leasing bank may charge you if the vehicle is damaged or if the bank determines that the wear-and-tear has exceeded its allowance, requiring you to pay for decrease in vehicle value. If financing, you don't have to worry about the amount of wear your car sustains. Expect to fully repair and maintain your leased vehicle before you turn it in. Otherwise, the leasing bank will send a bill.

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What Happens After Voluntary Repossession on a Vehicle?

Sometimes you have to face the fact that you must turn your automobile in because you cannot afford to make the payments. This is considered a voluntary repossession, and there is little difference from an involuntary repossession. A voluntary repossession allows you to save money in repossession fees because the lender does not have to hire a repossession company to repossess your car. Any fees incurred are passed on to the borrower.

Auction

If you voluntarily turn your car in, the lender will sell the car at an auction to the highest bidder. There could be a deficiency balance that you could be responsible for depending upon the state you live in. If you are responsible for the balance, the lender could get a judgment and pursue you with collection activities until the balance is paid. The collection activities can vary from state to state, but some of the activities that can be implemented include placing a lien on your property or even garnishing your wages.

Notification

The lender has to notify you when they are going to sell the vehicle. This gives you the opportunity to get the money needed to bring the account current and pay the fees if you happen to come into a large sum of money. The lender may reinstate your loan so that you can continue to make monthly payments. This is really taking it to the limit.

Pay Arrangements

After you are notified of the deficiency balance call the lender and make arrangements to pay. Sometimes you can negotiate for a payment that fits into your budget. You don't want to be forced to pay a larger payment than you can afford. Lenders will more likely want to work with you and accept your payment arrangements.

Credit Report

A repossession will show up on your credit file for approximately seven years from the day your account first became delinquent, not from the date of the repossession. This will lower your credit score, and your credit card companies will lower your credit limits and possibly close your accounts. Either one of these actions will also decrease your credit score. A lower credit score will increase the price you pay for other credit products, such as mortgage loans and automobile loans. You can identify a repossession on your credit file based on the credit rating. The rating will appear as an I-8. The "I" stands for installment, and the "8" stands for repossession.

Auto Loan

If you need to get another automobile, you may have to apply for a loan with a bad-credit lender, in which case the interest rate will be higher than normal and you could incur fees. There are companies that specialize in this type of lending. Later on, you may be able to refinance your car loan to get a lower rate. It is also important to keep paying your other creditors on time because this will have a favorable impact on your credit file and increase your credit score, which ultimately helps you recover from the repossession faster.

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What Happens If a Co-Owner Doesn't Pay a Car Payment?

If you cosign a car loan, you are equally responsible for the loan as the person for whom you co-signed. Any late payments or repossession charges will show up on your credit report affecting your score and history. You are also liable for the vehicle loan if it goes into default or the lender repossesses the car.

Bank Contact

Banks have varying procedures when it comes to notifying a co-owner of late payments or default. Before non-payment becomes a problem, contact your lender and ensure that it contacts you if a payment is late. Some banks only contact the registered owner instead of notifying both parties. If you know your co-owner is not going to make his payment, call the bank immediately and make the payment yourself to protect your credit.

Late Payments

If the co-owner does not make a car payment, the bank reports the past due amount to the credit bureaus for both parties. When future lenders look at your credit, they will see the number of late car payments over the period of the loan. Lenders usually report late payments after 30 days, which may be enough time for you to make the payment yourself. Even if you are not the person driving the car, cosigning the loan made you equally responsible for payments.

Loan Default

If the co-owner stops making payments and avoids bank contact, the bank will repossess the vehicle. Banks differ in the time allowed before pursuing repossession. Check the details stated in your loan contract. If the bank does repossess the vehicle, you may have a small window of opportunity to get it back by paying the past due amount. Repossession significantly affects your credit rating, so avoid it all costs.

Repossession

Even if the lender repossessed the vehicle, you are still liable for any amount due to the bank after resale. The bank will likely notify you of any balance due after it sells the car and allow you to make payments toward the debt. If you do not pay, the bank can pursue the matter in court. The bank will likely obtain a judgment to garnish your wages. For these reasons, cosigning a car loan presents significant financial risk.

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What Is the Trade in Value of My Used Car?

Trading in a used car is a simple way to get rid of an old car when purchasing a new one from a dealership. The dealership takes the used car and applies its value to the purchase of a different car. For example, if your trade-in is worth $6,000, your cost for a new vehicle would drop from $20,000 to $14,000.

Estimate Value

Many websites offer calculators that estimate a particular vehicle's trade-in value. Before going to the dealership to trade in a vehicle, look up the value of the vehicle on at least two reputable websites. Enter as many details as possible, such as the car's mileage and special features, and make an honest assessment of the car's condition to get the most accurate estimate possible.

Negotiation

Auto dealerships are sometimes willing to negotiate on the trade-in value of the car. This is why getting an estimate of the car's value before going to the dealership is so important. If the trade-in amount offered seems too low, ask for 10 percent more. If the salesman seems unwilling to budge, ask to see a list of recent auction prices for similar vehicles at dealer auctions. As a last resort, go to another dealership. The value might be low at a dealership that already has a few similar used vehicles on the lot.

Boosting the Value

The most significant way to boost a used car's trade-in value is to present the car in top condition. The interior and exterior should both look clean, and the interior of the car should be free of odors. An oil change and tune-up before visiting the dealership can ensure the car is running as well as it can. Dealerships consider the cost of bringing the car to its top condition when negotiating a trade-in value.

Considerations

A car's private party value is typically higher than its trade-in value. This is because dealerships need to mark up a used car's price before selling it in order to make a profit. In a private party sale, the price is usually between the trade-in value and the cost to purchase the used car at a dealership. Although selling a car to a private party requires some work to place ads and meet with prospective buyers, the sale price can be 20 percent more than the car's trade-in value.

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How Can I Find a Rent-to-Own Car?

If you badly need a car but you can't afford to buy a new one right away, there is an option for people in your situation. Rent-to-own cars are now available and affordable for those who do not have enough cash to purchase a new auto. This option varies from a traditional lease because you own the car at the end of the contract, whereas you must purchase the car or trade it in at the end of a lease. Payments on rent-to-own cars are flexible and often are allowed weekly, bi-weekly or monthly. If you think you this is for you, consider the following steps for you to find the right rent-to-own car.

Instructions

1

Find a good car dealer. You will want to check with the Better Business Bureau to ensure the car dealer you choose has a good record. If you know people who have purchased cars from the dealers, get a reference from them. A good car dealer will provide you with flexible payment options and provide dependable cars. The dealer should help you look for a vehicle that suits your needs and not try to persuade you to choose a car that the dealer wants to sell. Scour the car market for good offers and easy-to-pay plans in which payments are flexible and you can help determine what payment is best. Speak to a sales manager for details to make sure you know what you are doing.

2

Choose a car. Think of your needs when making the selection. You might want to consider the kind of work you do, the size of your family, the distances you travel daily and your frequency of vehicle use. Determine whether the vehicle's price and gas mileage costs are affordable on your budget.

3

Speak to the sales manager for details of the agreement. Find out everything about repairs, warranty and finance requirements. New and used cars often offer warranties; some repairs to the car may be covered under the warranty. Seek a rent-to-own vehicle with a warranty. Ask the dealer first if his cars have warranties. Clarify terms of payments and how much you have to pay initially for the vehicle. With this information, you can determine whether the vehicle will fit your budget.

4

Negotiate rental charges. The price of the car is the rental charge. However, the dealer also may charge interest. The dealer will compute the rental charge, which is the price of the car, and interest to determine the term of the contract and the payment amount. It is best to negotiate the price of the car because you may ultimately lower the rent-to-own price.

5

Gather your required information before you go to sign the agreement. Make sure you know what the dealer needs. Some car dealers require proof of employment; proof of insurance and, of course, your driver's license.

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Auto Financing Methods

The right auto financing package can help you secure a good interest rate on your next car purchase, and ultimately a lower car payment. Several options are available when financing a car. And doing your homework and exploring different methods of financing helps you choose the deal that's right for you.

Fix Credit

People with good credit scores can obtain the best interest rates on auto loans. Lenders vary in their definition of a good score. But according to Experian, a credit score 700 or higher generally indicates a good credit history. You can review your personal score by ordering from Myfico.com. If your score falls below this mark, take action to build a better score by paying your bills on time every month and reducing your existing debt balances.

Choosing the Right Term

A longer auto loan term will reduce your monthly payment. But if you can spare extra money each month, skip the 60-month financing option and go with a 36- or 48-month financing package. Benefits to choosing a reduced loan term include saving money on interest each month and you will paying off the vehicle loan more quickly.

Down Payments

Applying for auto financing with a down payment can increase your negotiating power. Auto lenders don't typically require down payments, and buyers can purchase without any out-of-pocket expense. Key benefits to financing with a down payment include knocking down the loan balance, which reduces the monthly car payment. And sometimes auto lenders reduce the interest rate on the car loan when a borrower supplies a down payment. Put down as much as you can afford.

Considerations

There's the option of trading in an old vehicle when financing a new car. But if you still owe money on your old car loan, consider selling the car yourself first and paying off the old car loan. If there are funds left over, use this as a down payment. The downside to trading in a car is that the dealership may not offer enough to pay off your existing car loan. For example, if you owe $4,000 on your car, the dealership may only offer $1,500 for the trade in and attach the remaining $2,500 to your new car loan.

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Debt-to-Income Ratio for a Vehicle

If you want to qualify for an auto loan, odds are you know your credit score and you probably know the current interest rates. Armed with this information, you may think you know everything you need to know to get a good car loan. However, youre forgetting one vital piece of information -- your debt-to-income ratio. Like your credit score, your debt-to-income ratio can affect whether you get a loan and what kind.

Definition

Your debt-to-income ratio is the amount of income you have left each month after you pay your debts, including student loans, credit card payments, mortgages and car loans. Calculating your debt-to-income ratio is relatively easy. Add up all of your recurring monthly debt payments, and divide them by your monthly take-home income, which is your income after taxes and other withholdings. The resulting percentage is your debt-to-income ratio.

Suggested Ratios

Acording to Bankrate, you should keep your debt-to-income ratio below 36 percent, as many banks and finance companies will not lend to you if you have a ratio over this amount. However, MSN Auto recommends that you keep your ratio under 20 percent, and Consumer Credit Counseling Services told MSN Auto that you shouldnt take on a car loan unless your ratio is lower than 15 percent.

High Ratios

If your debt-to-income ratio is high, you might be denied for an auto loan. Some car loan companies still offer loans to people with high debt-to-income ratios, but these loans will be less than desirable. They often have high interest rates and if you start struggling to pay you might not be cut the same slack that someone with a better ratio would receive.

Improving Your Ratio

To improve your debt-to-income ratio, you have to either increase your income or decrease your debt. Because increasing your income can be difficult, and it wont get rid of debt problems, the best way to improve your ratio is to decrease your debt. Create a repayment schedule that will allow you to slowly pay off debt, or work with a credit counselor to establish a plan before you get an auto loan if you are concerned you may not be able to make payments.

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What if You Buy a Car from a Private Seller but He Does Not Have the Title for the Car?

Purchasing a car from a private buyer who does not have possession of the title to the vehicle can complicate the transaction. Before you can take full ownership of the car, you must be able to get the title from the seller. In this situation, the seller must complete the proper steps to make sure you get the title to the car.

Go to the Lender

When buying a car from a seller who does not have the title, you may need to go to the auto lender to close the loan. If the person selling the car does not have the title because the lender still has it, you may need to close the loan at the lender's office. The seller will have to contact the lender to get the details of what will be involved. The lender may have a specific procedure that will be used, but in most cases, the lender will simply have you close the transaction at its office.

Escrow Service

Another option that you may want to pursue is using an escrow service. With an escrow service, you give your money to a third party to hold. The third party then alerts the seller that the money has been accepted. At that point, the seller then provides the car to the buyer. The escrow service then uses the money to pay off the loan and get the title. The title is then provided to the new buyer of the car.

Securing the Title Before the Sale

Instead of closing the transaction at the lender's office, the seller could also try to obtain the title to the car before the transaction takes place. To facilitate this process, the seller may have to pay off the car prior to being able to sell it to you. The seller could pay off the car with a credit card and then simply pay off the credit card bill once he receives the money for the car. Once he pays the car off, it could take a few days before the lender releases the title. Then the seller will have the title when he sells the car to you. If you want the seller to go through this process, you will have to agree to purchase the car first. Some sellers may not be willing to pay off the car unless they know that you will definitely purchase the car.

Transfer of Ownership

Once the seller has the title, he will also have to go through a process with your state to transfer ownership of the car over to you. This typically involves taking the title to the Department of Motor Vehicles or similar office and filling out a title transfer form. A nominal one-time fee will also be assessed for this process. Once the fee is paid and the form is submitted, a new title can be issued for the car with the new owner's name on it.

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Can You Trade in Your Vehicle if You Have a Lien on It?

You can trade in a vehicle if you still have a lien on it. A dealer must satisfy your lien holder when it takes your vehicle for a trade-in, but it can be handled in different ways, depending on your preference and the value of the vehicle. Most states also offer a tax deduction for trade-in vehicles, which can save you money.

Dealer Payoff Process

When you trade in your financed vehicle, your salesperson or another dealer representative must call your lender to obtain your exact payoff amount. Once you agree to a value on your trade-in, the dealer will present you numbers showing your trade-in value, payoff amount and new vehicle pricing. When you sign your purchase paperwork, you must bring your title and sign it over to the dealer unless you live in a state that sends the title to the lien holder. Expect to sign paperwork that authorizes the dealer to pay off your loan balance and any title transfer paperwork your state requires.

Owing More Than the Vehicle's Value

When you owe more than your loan payoff amount, known as being upside-down in a car, the excess loan balance transfers to your new car's purchase price. You can choose to finance the extra amount, if you prefer, or offer a down payment to decrease your negative equity. The dealer will still pay off your entire loan balance. A dealer must satisfy your loan in order to own the vehicle outright and resell it to another person.

Owing Less Than the Vehicle's Value

If the dealer appraises your vehicle for more than your loan payoff amount, the credit goes toward the new car's purchase price. For example, if you owe $8,000 on a vehicle appraised at $10,000, then the additional $2,000 comes off your new car's purchase price in addition to any manufacturer incentive or discounts. You can use the extra amount as your down payment. Depending on your state, you might also receive a sales tax deduction, which reduces your sales price even more.

Down Payment and Tax Deduction Consideration

If you're upside down in your current car loan, consider providing a down payment to cover your negative equity. Otherwise, you might remain in a negative equity position and find you cannot sell your vehicle or trade it in the future without providing a down payment. Many states also offer a tax deduction for trade-in vehicles. If you live in a state that offers a sales tax deduction, your trade value is reduced from the vehicle's taxable sales price before tax is applied. For example, if your trade is worth $8,000 and you purchase a vehicle for $10,000, you'll pay sales tax on only $2,000 instead.

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How to Negotiate Buying a Honda Accord

Many Honda dealerships employ an Internet sales department, which you can use to your advantage to negotiate pricing. Internet sales people can negotiate through email or by phone call. Once you have a quote from one dealer, you can use it to shop other Honda dealers in your area and ultimately have the dealers bid for your business. You can negotiate at the dealership if you prefer, but contacting the Internet sales department is likely to warrant you a low price without dealer hassle.

Instructions

1

Find out your Accord's invoice price by going to Edmunds.com to access its TMV (True Market Value) tool, or the AutoMall USA website. Invoice pricing is dealer cost for a new car. For either website, click on "Honda" to view its various vehicles, and choose the Accord model you want to pursue.

2

Choose the correct level Accord from the lineup. Edmunds.com allows you to choose the correct engine and transmission pair, colors and options you want to ensure that you're researching a properly equipped and priced vehicle. For the AutoMall USA website, you can view the invoice pricing based on a base, or entry-level, model.

3

Click on the "Get True Market Value Pricing" option from Edmunds.com and view the invoice pricing that includes the Accord's destination fee, listed next to "Total Price." The AutoMall USA website also lists the destination fee seperately, but the destination fee is not optional or negotiable.

4

Add the price of extra options or features for the Accord you chose, if you are using the AutoMall USA website. Access Honda's website to find the prices of Accord options and add it to the invoice price you received. You can also call a Honda dealer to find out the pricing of extra features or options.

5

Come up with a fair price to offer a Honda dealer. You can offer invoice pricing if you prefer, but consider a fair purchase price of $600 to $1,000 over the invoice amount. This is the amount a dealer can expect to profit on a new car.

6

Go to Honda's website and click on "Find a Dealer." Enter your zip code and click "continue." Several Honda dealerships are likely close to your area, so decide how far you'd drive to get the best price.

7

Go to one of the Honda dealer websites by clicking on the name of the highlighted dealer. Click on "Contact us" from the dealership's website to initiate negotiations. Fill out the contact form and state that you want to purchase a Honda Accord.

8

List the options and colors you want and state that you are ready to buy within a week. State your desired price and ask the dealer to email you if the price it accepts your price.

9

Wait for the dealer to email you back. If the dealer calls instead, discuss pricing and ask the dealer to email you its price offer so you can review it later. Once you have your price offer, use it to shop other Honda dealers.

10

Go back to Honda's website to contact other local dealers. State again that you are ready to buy immediately but have been working with a dealer who has offered you a purchase price worth consideration. Ask the dealer if it can beat the price to earn your business.

11

Contact each dealer in your area until you have a price you are happy with. Most Honda dealers in an area are in competition with one another to win regional contests or high sales rank. Even if you intend to work with a local dealership, having a valid price offer from another dealer is likely to warrant you the same price offer you received or lower.

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Can I Sell My Ex-Husband's Car if It Is Abandoned on My Property?

When your ex-husband has left his car on your property after a divorce, you might be tempted to sell it and use the cash for something else. Unfortunately, unless you are the legal owner of the car, you have no right to sell the car. However, because it is on your property, you can have it towed.

Divorce Agreement

When you went to court to work out a divorce agreement, the judge should have specified who gets what debt and property. After this, you should have transferred the things that the judge ruled are yours into your name, and your ex-husband should have done the same. The court usually specifies a time period during which these changes need to be completed, so wait for that period to end before doing anything about the car.

Car Title

In order to sell the car, you need to have the car title with only your name on it. When your name is the only one on the title, the car is yours to do as you wish, even if your ex-husband was the one who drove it while you were married. If your husband's name is on the title as well, you would need his signature to sell the car. If the title is in his name only, he likely has it anyway, and he is the only person who can sell the car.

Removing Vehicle

Call a towing company to have it remove the abandoned vehicle from your property. If your ex wants it back, he will have to go to the impound lot and pay the fees to get the car. Otherwise, the lien holder, if any, will repossess the car or the impound lot will sell the vehicle at an auction.

Considerations

If you would like to maintain any sort of goodwill with your ex-husband, contact him to let him know that you would like him to remove the vehicle from your property. Although you could call a towing company right away, this is unnecessary if your ex is willing to come get the car. Make sure to specify a reasonable time frame for him to get the car and let him know that you will have it towed if he does not remove it from your property by then.

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How to Calculate Effective Annual Interest Rate on a Car Loan

Budgeting for car payments is an important part of a comprehensive cash-flow plan and money-management strategy. Knowing the amount of the car loan and the annual interest rate will help you calculate what your monthly payments for the car will be and how long it will take you to pay it off. However, if the interest on the car loan is compounded more than yearly, the amount of your car loan plus interest may be more than you think. An annual interest rate when the interest is compounded more than annually is known as the effective annual interest rate. Determining the effective annual interest rate will enable you to calculate the exact amount you will pay on the loan.

Instructions

1

Determine the initial amount of the car loan and the given annual interest rate for this loan. Also verify how often the interest is compounded (generally it's monthly). For the purpose of this example, let us designate the annual interest rate as 10 percent.

2

Divide the annual interest rate by 12, or however often the interest is compounded in a yearly period. Add 1 to this number. An annual interest rate of 10 percent compounded monthly would yield 0.1/12 + 1 or 1.008333.

3

Raise the result from Step 2 to the power of 12, or however often the interest is compounded annually. The numbers from our example give 1.008333^12 = 1.1047.

4

Subtract one from the number determined in Step 3. This is the effective annual interest rate for the car loan. For our example, the effective annual interest rate is 1.1047-1= 0.1047, or an effective annual interest rate of 10.47 percent. Use this number to determine how the effective annual interest rate will affect the amount of the loan in a year's time.

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The Process of Buying a Car at the Dealer

For many people, purchasing a car at an automotive dealership is a scary process, mainly because they are not familiar with what will happen when they go inside. You may expect someone to be ready to rip you off, but many dealers are staffed with decent people who will go out of their way to treat you fairly. Still, you should be completely familiar with the basics of the process to get the most for your money.

The Beginning Stages

Before going to the dealership, start by deciding which cars interest you. You should already have an idea of what type of vehicle you are looking for to suit your needs. Review automotive magazines and websites to see which models interest you the most. If you are interested in one or two particular brands of vehicle, limit your search to models within those brands that suit your needs. Find out what the manufacturer's invoice price is on the models that interest you most.

The First Trip To The Dealership

Now it is time to make your first trip out to look at vehicles. Ask friends or check online for dealerships that have the best recommendations, and visit a couple of different dealerships for each model of vehicle you are interested in. You may want to inquire online or by telephone to see if they have the vehicles that interest you most. Set an appointment so one of the sales reps will have some time to spend with you. You are not going to buy on this trip, and it is a good idea to let them know this up front.

Test Drive

Take each vehicle on a test drive, either with the salesperson or without. A good salesperson will give you a walk around tour of the vehicle to point out all of its features and benefits to you. Pay attention if your salesperson does this, as he can provide good information, and a good sign that the salesperson is interested in putting you in the correct vehicle. Spend time driving each vehicle around town and on the highway. Drive the vehicle during the day and after dark, if possible. Get a good feel for the vehicle under all possible driving conditions, to see if you like it.

Negotiations and Purchase

When you have made a decision about which vehicle you want to buy and the dealership that you want to purchase from, make another appointment with the sales representative. Begin negotiating the price you will pay, starting from the manufacturer's invoice price plus a reasonable profit. Do not talk about monthly payments during the negotiation stage, because a dealer can hide a higher price by stretching the finance terms out longer to give a lower payment. It is best to have your financing arranged before you purchase. When you negotiate an acceptable purchase price and an acceptable trade in allowance if you have a trade, go ahead and close the deal by presenting a check from your own bank or accepting the dealership financing.

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What Happens When My Car Lease Is Up?

Leasing a car is a way that you can get the car you really want at a payment you can afford. After the lease is up, you have to decide what to do with your car. At this point, you must deal with the dealer to explore your options.

Extend the Lease

One option that you have at the end of a car lease is to extend the agreement. Most car leases last for about three years originally. If you get to the end of that three years and you decide that you really like the car, you can ask the dealer about extending the lease agreement. You might be able to get another 2 to 3 years to use the car with this type of arrangement.

Buying the Car

Another option that you may have is to purchase the car that you just finished leasing. When you set up the original lease agreement with the dealer, the dealer gave you the buy-out price at the end of the lease. This was calculated by taking the original value of the vehicle and subtracting the amount of value lost during the lease. You can then pay that amount and buy the car, or you could try to negotiate a new price with the dealer.

Turn in the Car

Perhaps the easiest solution to pursue is to turn in the car. At the end of the lease, you can simply drive it back to the dealer, hand over the keys and then leave. If you take this approach, you will then have to find another car to drive, but you are no longer obligated to the car or the dealership in any way. If you do not really like the car, this is probably your best approach.

Charges

At the end of the lease, you may be subject to some fees and charges from the dealership. If the car has a lot of wear and tear on it, you might have charges for damage. If the car is over the annual mileage limit, you can also have charges on a per mile basis. Before you take the car back to the dealership, you may want to have it detailed so that it looks nice. This could lessen the chances of getting any wear and tear charges.

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Does a Debt Settlement Affect a Car Lease?

Leasing banks don't cancel contracts because of other credit issues that occur during the contract period. Once approved for a vehicle lease, expect to carry out the terms of your contract, which won't list your responsibility for other debts. Depending on your credit position, the debt and settlement listed on your credit report might decrease your chances of obtaining another lease approval in the future.

During Your Lease

If you've already signed a lease contract, other debts won't affect your current lease. When you first initiated your contract, the leasing bank obtained a copy of your credit report and determined whether to approve or deny your lease. If you had previous or recent unpaid debt on your credit report, the leasing bank probably wouldn't have approved your application. Once you sign your contract, you'll lease your car by the terms stated in the contract unless you fail to make payments. Even if you don't pay any of your bills during the lease period, you'll abide by your original contract terms.

Before a Lease

If you plan to pursue a lease after paying a settlement, your application might be declined, but not because you settled the debt. If you settled a debt, then you were most likely behind on payments. Unpaid debts reported to the credit bureaus lowers your credit score and increases your lending risk, although the impact of an unpaid debt affects people differently. Your credit score might not drop significantly if you have numerous loan accounts and a spotless payment history. If you have numerous unpaid accounts or limited credit, you probably won't obtain a lease approval.

Other Options

Leasing requires good credit, while financing options offer more leniency for past credit issues. If you can't obtain a lease approval because of your credit, pursue a loan instead. Depending on the severity of your late payments or past due account balances and how much the instances affected your credit score, you might pay a higher interest rate and a large down payment or face a shorter loan term restriction to decrease your lender's risk. You might still obtain a lease or unrestricted loan approval if you use a co-signer.

After Your Lease

If your credit suffered during the term of your lease contract and you've paid the leasing bank on time, you still probably won't obtain another lease approval until your credit improves. Even with a good payment history, a leasing bank requires a new credit application and reviews your credit again before approving another lease. Settling the account also shows lenders you didn't pay the amount you promised even though you made an effort to pay the debt off.

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Will Leasing a Vehicle Help Rebuild My Credit?

You have three options when shopping for a car: obtaining an auto loan, buying a car outright with your own money and leasing a car. Buying a car outright will have no affect on your credit rating, while leasing and obtaining a loan will. It's often easier to build your credit by leasing a car than by obtaining a loan for a car.

Making Timely Payments

You're guaranteed to see your credit score increase if you pay your lease payments on time every month, assuming you're not harming your credit in other ways, such as late credit card payments. Even if you're late by five or 10 days, financial institutions likely won't report you to the credit bureaus. Most financial institutions have a grace period that allows you to make your payment a few days late. If you fail to make a payment within 30 days of the due date, your credit score will take a hit.

Lower Monthly Payments

Car lease payments are typically less than loan payments. While your payment itself doesn't have an effect on your credit, you stand a better chance of making your payment on time if you're paying $150 a month versus $300. If you find that regular car payments are stretching your budget thin, certainly consider leasing a car so that you can make timely payments and increase your credit rating.

Amount Owed

About 30 percent of your credit score comes from amounts owed, according to the Quicken Loans website. This is the amount of money owed to different accounts. Owing a lot of money to different accounts suggests that you're a high risk, and thus your credit score will take a hit. You're going to owe a lot less on a lease than an auto loan, which means your amounts owed won't take a significant hit. For example, if you purchase a $20,000 car, you owe $20,000 plus any interest added to the loan. If you lease a $20,000 car for 24 months, you may only owe $7,000 plus any interest added to the lease.

Credit History

Leasing a car means that you're establishing a new credit account, which counts toward your credit history and has a positive impact on your credit score. If you're considering purchasing a cheap car outright with cash or leasing a more expensive car, electing to lease will result in an increased credit score in the long run. The only time this isn't true is when you open too many accounts in a short period of time. For example, if you open five credit card accounts and lease a car within six months, your credit rating will go down. Opening several credit accounts in a short period of time represents risk.

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Does It Hurt Your Credit to Pay Off an Auto Loan Early?

Maintaining good credit is an important part of your financial well-being. When a person finances a car, he usually does so with the intention of doing so over the course of a predetermined amount of time. Sometimes, after purchasing a car using a loan, a person may find himself in a position to pay of his car loan at a much earlier date. Paying off a car loan early can be a good idea, but you need to know how it may affect your credit before doing so.

Payments vs. Lump Sum

One of the best ways to pay off your loan so that it affects your credit positively is to make additional monthly payments that increase the amount of you are paying towards the loan's principal amount each month. You can also deposit the remainder of the loan into a defeasance account, which automatically credits the amount you want to go towards paying off the loan. Because your credit can improve each time you make a debt payment, both of these methods can help your credit score.

Lump Sum

You can also choose to make a lump sum payment to pay off the remainder of you auto loan. However, doing so may have a negative impact on your credit score. When a lender reviews a person's credit score to determine whether it should extend him credit, it looks at his credit history for information about his ability to manage long-term debt payments. If you pay off your car loan with a lump sum payment, particularly before a minimum of 12 months have passed, your car loan history will not provide the lender with relevant information.

Penalties

Before deciding how you want to pay off your car loan, you should first make sure that doing so does not incur additional fees or penalties. Loan rates are typically based on the anticipated retirement date of the loan, which includes interest accumulated over a specific period of time. As a result, lenders lose money, in the form of lost interest, each time a borrower pays of a loan before the agreed-upon date. While such savings benefits the borrower, lenders often charge opportunity cost fees to try to recoup lost income.

Credit Score

Paying off a loan early lowers a the total amount owes, thereby raising his credit score. Amounts owed make up 30 percent of your total credit score, so if your car loan is relatively high, paying it off early could significantly raise your overall score.

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How Will Co-signing an Auto Loan Affect Your Credit?

If you co-sign an auto loan, you are just as responsible for the loan as the person with whom you co-sign. The loan is reported to the credit bureaus as if it were your own loan. If your co-signer defaults on the loan, it affects your credit. You might have trouble taking out your own car loan or obtaining a line of credit.

Debt-to-Income Ratio

If you co-sign for a loan, you probably aren't the one who will make monthly payments. Your credit report states otherwise. Because you co-signed the loan, the account goes on your credit report, showing the monthly payment the loan requires and the balance left of on the loan. Potential lenders consider a borrower's debt-to-income ratio, which is the amount of money you make versus the amount of money you pay out each month. If you apply for another car loan for yourself, your application might be declined because you already have an auto loan responsibility.

Credit Score

Until the person you co-sign for starts to pay down the loan, your credit score will drop because of the new line of credit and length of time on the account. In time, a positive payment history can improve your credit and increase your score. However, if your co-signer doesn't make his payments on time, your credit score will decrease and your credit report will show a history of late payments, which can affect your future borrowing opportunities.

Future Loans

If your debt-to-income ratio is unfavorable to other lenders because of the co-signed loan, you might still obtain another loan approval but at a higher interest rate or with term restrictions. If you don't make enough income to afford another car payment, you might not obtain an approval at all. Future lenders might view you as a risk. If so, a lender might require a down payment before extending a loan or restrict your loan term to increase equity in a vehicle, which results in a higher monthly payments.

Warnings

Before you co-sign for a loan, make sure you understand your responsibility for it. If your co-signer does not pay for the vehicle, it will be repossessed. You might be able to take on the car payments yourself to get the car back, but if not, your credit will suffer. Obtaining a loan approval after a repossession is difficult. The repossession will remain on your credit report for seven years. The lender can also sue you and garnish your wages if your co-signer doesn't pay the bank for its loss after repossession.

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How to Calculate Lease Interest & Payments

Calculating a lease's monthly interest and payments takes some homework, but it is always a good idea to fully understand such a significant transaction. A good example would be a car lease, which takes nine steps to calculate. As a part of your homework, you'll need to do some research about the car's value and also the interest rate inherent in the lease payment.

Instructions

1

Determine the car's residual value at the conclusion of your lease (for example at the end of three years). You can look up the value of a three-year old model of the same car on the Kelley Blue Book site.

2

Determine the invoice price of the car--what you would actually pay to purchase it.

3

Subtract the residual value from the invoice price. The result equals the depreciation over three years (36 months).

4

To calculate the monthly depreciation payment, divide the result in Step 3 by 36 months.

5

Next, add the residual value (Step 1) to the invoice price (Step 2).

6

Determine the money factor. This is the interest rate you are being charged divided by 2,400. You could ask the dealer for this figure or call some banks that make car loans to get an approximation.

7

Multiply the result of Step 5 by the money factor. The result is the money factor portion of your monthly payment.

8

Add the money factor (Step 7) and the depreciation payment (Step 4) to calculate your monthly lease payment before taxes.

9

To add the taxes, multiply your local sales tax rate by the monthly lease payment (Step 8). Add this result to Step 8 for your total monthly payment.

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What Is a Maturation Agreement Term on an Auto Loan?

"Maturation" or "maturity date" on an auto loan refers to the agreed-upon day the loan will be due in full. At that point in time, your principal debt and your interest should be entirely paid off. With an auto loan, you will have paid off your debt by its maturation term as long as you have made all scheduled payments on time.

Knowing Your Maturation Date

You will know your maturation date because it will be listed in your auto loan. This is the date you and your lender agree to when you set your loan terms. Since all of your terms in part depend on this date, it is important to know exactly when your loan will come due from the time you take your loan.

Average Maturation Length

Auto loans can vary in length from three to seven years. Generally speaking, a loan that is paid off quicker will be less costly than a loan that is paid off over a long period of time. With a long loan, there is more interest. However, a short 24- or 36-month loan can force you to make high monthly payments to cover the large amount you owe quickly. Ultimately, you should make a decision that allows you to afford the monthly payments while still saving money on interest.

Payoff Before the Maturation Date

The terms of your auto loan are based on the idea you will repay your debt on, not before or after, its maturation date. If you intend on repaying your loan early, your lender will be losing out on anticipated interest. This can cause the lender to charge you a prepayment penalty. Always ensure this penalty is lower than your interest would be over time. Otherwise, you could be wasting money by paying off the debt early.

Payoff After the Maturation Date

If you cannot pay off the loan on schedule, it is important to anticipate the problem and make arrangements as necessary. You can change the maturation date on a loan by refinancing the debt. This may result in more interest over time, but refinancing is a better alternative than defaulting if you cannot repay the debt by its maturation date.

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