May 2011 ~ Managing a Car Loan

Monday, May 30, 2011

Requirements for Repossessing in Illinois

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In Illinois, repossession law falls under the state's Uniform Commercial Code, the Motor Vehicle Retail Installment Sales Act and the rules set forth by the Secretary of State. Repossession usually refers to vehicles and not household goods, as the resale cost of household products is often not worth the creditor's time. If you are in danger of defaulting on your loan, your creditor can repossess only under state-mandated circumstances.

An Illinois vehicle may be repossessed only if the creditor has a security interest, or legal financial claim to the vehicle. The security interest must be in writing in the vehicle lease. Even if you are behind on only one payment, a creditor can repossess your vehicle in Illinois. However, the default terms must be defined in the lease contract.

While a creditor may take your vehicle at any time, the state laws surrounding the repossession favor the consumer. For example, the creditor must return your personal items at your request or the repossession may be overturned in court. The repo man may not threaten or coerce you, break into your private property or take your vehicle from your home without your permission or he will be in violation of Illinois breach of peace laws.

If you own more than 30 percent at the time of repossession, which includes your down payment and all subsequent monthly payments, Illinois law states that your creditor must give you 21 days to redeem the vehicle. In these cases, the price you owe is the overdue amount, late charges and repossession expenses. If the car is repossessed more than once, the 30 percent rule does not apply to the second or subsequent repossessions. For all other cases, the consumer may redeem the car by paying the creditor the full contract on the loan before the creditor resells the vehicle.

To prevent a repossession, consider filing bankruptcy. While harmful to your credit rating, a bankruptcy status will force an automatic stay on the repossession, which prohibits the creditor from taking further action. You should also ask your creditor for a payment plan or extended grace period. You also have the option to sell your car or find a friend or family member to take over the payments.

How Do Car Title Loans Work Through Banks?

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Financial institutions offer car title loans to consumers who need to get cash quickly and have no other sources. The loan process and the requirements are similar to those for vehicle financing. When applying for a title loan, a consumer must present a clear title for the vehicle he is using as collateral.

Car loans and title loans are similar but serve different purposes. A car loan finances a vehicle. A consumer uses proceeds from a title loan for his personal needs. A vehicle serves as collateral for these loans. Insurance requirements are the same for both types of loans: a car owner must carry a liability coverage until the loan has been repaid. It protects the consumer and the lender if a vehicle is totaled in an accident. In this case, the insurance company would pay off the loan.

The qualifying process for title loans is similar to the one for auto loans. A consumer may go to a bank branch and fill out a loan application. He must bring paycheck stubs or tax forms to show his current income. The consumer must present a free and clear title. If the title lists a lien holder, the owner must show a lien release. During the process, the lender will pull the applicant's credit report. If the consumer doesn't qualify, the lender may suggest getting a co-signer.

Not all vehicles can serve as collateral for title loans. Creditors may be reluctant to lend money on older vehicles with high mileage because they hold little value and are difficult to resell if a consumer defaults on his loan. The maximum collateral age varies by lender. Lenders may make exceptions for collectible and rare vehicles. Used car guides, such as NADA and Kelley Blue Book, provide a fair market value of vehicles. Creditors may lend up to 100 percent of this amount depending on each individual situation.

Before receiving the funds, the consumer must bring or mail the original title to the lender, who will then issue a cashier's check for the loan proceeds. The lender will apply for a lien by sending the title and the loan documentation to the local department of motor vehicles (DMV). The DMV will re-issue the title with the financial institution listed as a lien holder. In some states the title is then mailed to the car owner and a lien card mailed to the financial institution that holds the loan. In other states both the lien card and the title are mailed to the creditor. Once the loan is paid off, the lender will mail the lien card and the title (if applicable) to the owner.

What Happens at the End of My Car Lease?

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Lease-end procedures differ slightly by bank. Your leasing bank should provide instructions for your lease return ahead of the contract's expiration date. Expect to complete paperwork once you drop off your lease and for the bank to collect and inspect it afterward. Some banks require an inspection ahead of your lease's return.

Prior to the end of your lease contract, you should receive mail that further explains the bank's lease-end procedure. Your bank will also offer you several lease-end options, such as returning the vehicle or purchasing it. Any mail, which provides complete instruction and paperwork, should arrive several months prior to your lease-end. If you do not receive the information, call your bank. Some leasing banks provide lessees with necessary instructions and paperwork online, so check your bank's website as well.

Some banks require you to complete a vehicle inspection before you return your car, while other banks offer an optional inspection. The inspection process is somewhat flexible. You can arrange for the inspection person to come to your home, work or arrange for an appointment at a dealership. The inspector checks your vehicle over for needed repairs, body or interior damages. If your vehicle needs maintenance or repairs, you'll have enough time to complete the work so you can avoid receiving a bill after returning the car. If the inspection is optional, have it done to ensure you don't owe money later. The inspection is free.

Complete any paperwork your bank requires. You might receive a packet with the forms you need, such as a damage disclosure. If not, you'll complete any necessary paperwork at the time you return your vehicle to a dealership. The dealership representative who completes the lease return process with you will document the number of keys you return and complete an odometer statement and damage disclosure, if necessary. Dealerships rarely inspect lease returns. Most dealers only process your return paperwork and notify your bank that it can collect the vehicle.

Once the bank collects your car, it is inspected either again or for the first time. If you completed an inspection already and completed suggested repairs, an inspector will verify so. If this is your first inspection, the inspector ensures that your vehicle is in good condition. All maintenance items should be up-to-date and the car should be free of damages. If you went over your lease mileage allowance, you will be billed for over mileage penalty fees. If your car was not properly maintained or repaired prior to return, you will be billed for the bank's loss of value.

Should I Pay Off My Car Before I Sell It?

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Regardless if you sell your car to a dealership or private buyer, the process involves a lot of paperwork. Almost all dealerships will take your car even if you owe on it, but you'll have to make payoff arrangements with either the buyer or lender if you plan to sell privately. While paying off your car can lessen the amount of paperwork and preparation, it's not always the smartest decision.

If you have a loan attached to your car, a lender holds the title. You cannot legally sell a car if you do not own the title. That doesn't mean you can't sell your car at all, it just means you need to acquire the title first. The easiest method is to simply pay off the car. After you make your last payment, the bank will then mail you the title. You can also elect to arrange a payoff method with the bank. You can use the funds you get from the buyer to pay off the remaining portion of the loan and then give the loan to the buyer. Regardless of your method, you must pay off the remaining loan amount.

If you trade in your car, the lender will still want the loan paid off, but you don't need to be involved in this. The dealership can flip your current loan over to your new car loan. This effectively puts you upside down on your car loan, which means you start out owing more than the car is worth. Since cars depreciate at a rate of 15 to 25 percent per year, according to Edmunds.com, you're going to owe far more than the car is worth by the end of your loan. If you can pay off the car before you trade it in, do so. If you can't, make sure you pay off the new loan before you buy a new car in the future. Otherwise, you may find yourself in a constant cycle of upside-down loans.

If the remaining portion of the loan exceeds an amount you can afford, it's smarter to either sell the car privately and use the money to pay off the loan, or trade your car in and deal with an upside down loan. While an upside-down loan puts you at a disadvantage, defaulting on a new loan because you used the majority of your funds to pay for an old loan is a lot worse.

You may be able to find a dealership that will pay more for your car with a loan attached than if your car was paid off. For example, if you shop around, and most dealerships offer you a $2,000 credit for your car, but you insist that you need at least $2,500 to pay off the loan and an additional $1,000 towards a new car, you might get a dealer to bite. In addition, some dealers offer limited-time deals involving car loans, such as offering to pay off your loan and match that amount in cash back on a new car.

How to Buy a Motorcycle When the Owner Still Owes the Bank

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Buying a previously owned motorcycle is similar to buying a previously owned vehicle. Just like a car or truck, a motorcycle must be titled in the state where it is registered. When the owner still owes the bank for the motorcycle, the title is usually held by the bank instead of the owner. This presents a challenge because the title must be transferred when the motorcycle is sold.

Instructions

Ask the motorcycle owner to call the bank while you are with the seller. Once the owner makes the call, ask him to tell the customer service representative that you are authorized to talk with the bank about the motorcycle loan account.

Confirm the payoff amount on the motorcycle loan. This lets you know whether the seller has misrepresented the amount due on the loan. If the amount due is more than the amount you are planning on paying for the vehicle, ask the owner how the difference will be covered. The bank will not release the title until the loan is paid off in full.

Tell the representative that you are interested in buying the motorcycle. Ask whether the lender will take the payoff amount from you and send the title directly to you, or to your bank if you are financing the cycle. Some lenders will do this while others will only send the title to the owner currently on the loan. This means that you may have to pay the owner and let him pay off the loan to get the title released. If this is the case, write up a document stating that you are making payment and that the title will be signed over to you when it arrives. Have the document notarized.

Coordinate with the owner to sign the title together, once it arrives. If it is being sent to you or your bank, you can ask the seller to come sign it when it arrives. Otherwise, you must wait for the title to arrive at the sellers home. Once the title arrives, the seller must sign the title over to you so that you can register the motorcycle in your name and get insurance on it.

Would the Surrender of a New Car Affect My Credit?

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Surrendering your vehicle, known as a voluntary repossession, affects your credit substantially. Also, if you have a co-signer, her credit is also affected. Before you decide to voluntarily return your new car, understand the financial consequences of doing so. Instead of surrendering the car, you may have other options available to you.

Two types of repossession exist: involuntary and voluntary. If you return your vehicle willingly, your lender reports the return as a voluntary repossession to the credit bureaus. If the bank hires a repossession company to collect your vehicle and return it to the bank, the lender reports the return as an involuntary repossession. Despite the different names, both affect your credit rating the same. Future creditors will see you have a repossession history and a low credit score, even if you returned it willingly.

Repossession significantly damages your credit score and remains on your credit report for seven years. Borrowing another car loan or pursuing other forms of lending (such as a home mortgage) during this time will prove difficult. Some employers also check credit, so future employment can also be affected. If you can obtain credit or a loan in the future, you'll be considered a high-risk borrower and will likely pay higher interest rates.

Even though you returned your vehicle, you are responsible for any balance due on the loan. Once the vehicle is returned, the bank will resell the car either at auction or privately. The bank will notify you of the vehicle's sale price and request you to pay the amount due. Collection attempts begin soon after. If you do not pay the balance, the bank can pursue a judgment, further damaging your credit. It can also garnish your wages to get its money back.

If you are trying to return your vehicle because of a lemon law issue, do not stop paying your loan bill. Lemon law procedures and the vehicle's loan are two separate matters. Until the situation is rectified, you must make your car payment as specified in your bank contract. If you no longer want your new car, sell it on your own to avoid repossession. Or, you can trade it to a dealer for another car purchase. Talk to your lender or dealer to explore your options.

The Best Car Loan Tips

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Buying a new or used car often involves financing the purchase. The terms of your auto loan affect the monthly payment. Take steps to ensure you receive the best rate and terms on your next purchase by employing a few effective car loan tips.

Auto lenders work with different types of buyers, and having a low credit score won't necessarily prevent an auto loan approval. However, bad credit does result in higher finance fees and a higher monthly payment. Getting the car that you want and a price you can afford may involve getting the best interest rate on the loan. The higher your credit score when applying for the auto loan, the lower the interest rate on the loan. Aim high and attempt to achieve a score 700 or high to receive a favorable rate. Paying down debt and timely payments contribute to a higher credit rating.

Many car loans extend up to 60 months. Extending the car loan term helps lower payments. But if looking to pay off the loan quicker and possibly receive a lower interest rate, select a shorter loan term such as three or four years. Based on your interest rate, auto lenders can quote the monthly payment on a reduced loan term. Review the numbers and check your finances to determine affordability.

Auto loan lenders do not require down payments. Benefits to buying a car with a down payment include the ability to negotiate a better interest rate on the loan. Plus, down payments reduce the amount you need to finance, which also lowers your monthly payment. There's no required minimum for a down payment, but plan to put at least 10 percent down on the purchase.

Car loans vary, as does the interest rate on a car loan. Shopping around for the best rate on your next auto loan purchase can save money during the course of the loan. Dealerships have a finance department, and they'll work with you to find an auto loan. While it's useful to explore the dealership's finance options, it also helps to look for your own financing and make comparisons. Take the dealership's offer and then contact a couple banks in your area for a free auto loan quote. Review quotes and pay attention to the interest rate, loan term and monthly payment. Choose the finance package that offers the best terms and the lowest rate and payment.

How to Make a Down Payment on a Car

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When purchasing a car, you have the option to buy the car outright, obtain financing from your bank or obtain financing at the dealership. A down payment is money paid upfront to a dealership and serves as a way to lessen the impact of a car loan by lowering your monthly payments. Because a down payment reduces the amount of money you need to borrow, your interest rate on a loan may be less than it would be if you didn't make a down payment. The down payment is made at the dealership.

Instructions

Decide if you want to lease or finance the car. Down payments are typically required and almost always advised when financing a car, but rarely required and almost never advised when leasing a car.

Determine the maximum down payment you can make. Edmunds.com explains that a 20 percent down payment is ideal because the down payment pays off the car's first year deprecation. However, if making a 20 percent down payment will put a strain on your finances, make a lesser down payment, such as 15 or 10 percent. You can make a down payment of more than 20 percent, if you wish.

Obtain financing and provide the dealer with the down payment. Most car dealerships accept down payments in the form of cash, checks or debit cards. If a dealership accepts a debit card as payment, then credit cards are also usually accepted. Unless you can pay it off immediately, you should avoid making a down payment on a credit card.

If My Car Was Repossessed, Can I Refinance Another Car?

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Refinancing a car loan requires you to apply to a new lender to transfer your existing loan balance. Financing a loan allows you to start a new loan if you're a first-time car buyer or have paid off a previous loan. If your vehicle has been recently repossessed, pursuing either option is likely to prove difficult. Without a co-signer, expect to put money down and pay a higher interest rate.

To apply for a refinance or a new finance account, decide which lender to apply to. Because of your repossession history, it may prove worthwhile to apply to a bank you have a good payment history with, even if the loan has been satisfied. Otherwise, you can call local banks to find out more about the approval and application process. Talk to a loan representative to discuss your credit concerns and financing options. If your repossession was years prior, it may not significantly affect your current loan application.

If your repossession was recent or you have not yet reestablished your credit, a down payment will probably be required for a loan approval. Banks decide the lending amount of a vehicle's value based on credit history. If you have poor credit, this amount can be as low as 60 percent of the vehicle's value. Unless you can purchase a vehicle for 60 percent of its market value, which is highly unlikely, you can expect to put down 40 percent of the car's price in addition to taxes and/or fees.

If you have poor credit, a bank may restrict the term of your loan. A shorter loan term increases and maintains equity in the vehicle, which is beneficial for the lender. Your interest rate will also be higher than average; some states cap the interest rate at 29 percent. A shorter term and higher rate can significantly raise your payment by hundreds of dollars every month. A refinance may not be worthwhile because of the repossession, unless you have successfully reestablished your credit.

Work with a dealer if you want to initiate a new loan. Rather than send in your application for approval or denial, the dealer can send in the application for a "payment call," which allows banks to make an offer based on the down payment, vehicle value requirements and loan term. This allows you to shop for a car within bank guidelines and your budget. A co-signer can also help. If you can find a good co-signer, you can refinance or start a new loan with a lower rate, longer term and less money down.

What Happens If You Try to Get Out of a Car Lease?

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Leasing an automobile allows the freedom to use a vehicle and make payments on it, without having to purchase the car at full price. When the term of the lease is up, the lessee can choose to purchase the vehicle at a reduced rate, or trade the vehicle in for another lease agreement or car purchase. Leasing a vehicle, however, requires an individual to sign a contract, during which the person is required to continue making payments on the car.

Getting out of a car lease can be difficult---but it is by no means impossible. Here are a few things you can expect when you attempt to get out of one. A common misconception about terminating a lease is that, when you decide to get rid of a vehicle, you simply need to return it and pay the prescribed termination fee. While sometimes lease termination is just that easy, this usually is not the case. The fees required to terminate a lease add up, and may in fact be in excess of the amount you still owe, which requires you to continue leasing the vehicle if you want to continue saving money. Oftentimes, a company will allow you to terminate for a smaller penalty, but will require that you pay out the rest of the term remaining on your lease. Either option is more expensive than simply finishing out the term.

You may decide, after leasing a car for a time, that you would like to purchase the vehicle. Fortunately, this is a perfectly legitimate way to "get out of" a car lease. Unfortunately, the cost can be higher than simply finishing out your lease agreement. Because your use of the car causes it to diminish in value, the actual resale price of the car (known as the residual value) might end up being significantly less than the amount you'll be required to pay to purchase it. Learning the "money factor" and negotiating the capitalized cost of your vehicle will help you to get a good deal as you negotiate; but beware that doing so is difficult.

Perhaps the easiest and most cost effective way of ending your lease is to transfer leases with an individual who is leasing a vehicle that strikes your fancy. In fact, there are so many resources and means of swapping a lease that you might be surprised how quickly you can get out of a lease that does not suit you. Lease transfer companies offer websites where thousands of people list their vehicles and, for a small listing fee, you can place your lease and your desired trade up for negotiation.

How to Change a Lienholder

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When you have a loan against your car, you may find it necessary to change the holder of your title at some point. The process of changing a lien holder will vary from one state to the next, but the general steps are the same. This may be necessary if you are refinancing your car or if the original title was incorrect in some way. Typically, you must pay a fee and fill out some paperwork.

Instructions

Refinance your car loan. When you have a loan against your car, the lien holder will be the lender who currently holds your loan. When you refinance your loan, the new lender will pay off your original lender and will then become the new lien holder. In most cases, the title will be sent to the new lender and it will handle the process of changing the lien holder name for you.

Complete a title amendment form with the Department of Motor Vehicles or its equivalent in your state. With this form, you can change the names of the lien holder or the names of the owners of the vehicle on the title. This can be useful if the title was issued incorrectly with the wrong lien holder name on it.

Pay the filing fee to the Department of Motor Vehicles or similar organization in your state. Typically, this will be a nominal fee that you must pay at the time the title amendment form is turned in. For example, in Massachusetts in July 2011, you had to pay $25 to change the lien holder.

Mail the form to the appropriate office or turn it in personally. If you mail the form, include a check or money order for the correct amount required.

Home Equity Loan Vs. Auto Loan

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Homeowners have loan options when they want to purchase a car. For example, they may acquire an auto loan or use a home equity loan. However, it's best to weigh the benefits and drawbacks of each one before deciding how to proceed.

A home equity loan is money that homeowners borrow based on the amount of equity in their home. Equity is the value of the home minus all liens, or loans, against it. These loans may be used for many purchases. An auto loan is a lump sum of money borrowed specifically for the purchase of an automobile.

A home equity loan usually has lower interest rates than auto loans and may be repaid over a longer period of time. The interest that homeowners pay on an equity loan may be tax deductible, according to U.S. Bank.

Homeowners who use a home equity loan to buy a car may be placing their home at risk. If they default or fall behind in their loan payments, their properties are subject to foreclose by the lending institution. If an auto loan is not repaid, then the car may be repossessed.

Financing & Credit Problems With Used Cars

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Used cars are more economical than new vehicles because a brand-new car depreciates significantly as soon as you take possession. The average car value drops 15 to 20 percent within the first year, according to Bankrate.com writer Lucy Lazarony, and its worth continues decreasing. The cost savings makes used cars appealing if your finances are limited, but there are some challenges to getting a loan for a pre-owned auto, if you have past credit problems.

Clean up your credit reports before applying for any loans. This will eliminate some of the problems associated with used car financing. The Federal Trade Commission (FTC) website explains that you can do this for free if you get your Experian, Equifax and TransUnion reports from annualcreditreport.com. The direct credit sites charge for reports or make you sign up for costly memberships to get them, the FTC warns. Find and dispute mistakes that keep your car loan from getting approved. For example, challenge on-time payments reported as late or inaccurate account balances that make your debt load look worse than it is. The bureaus must investigate and fix or erase the questioned entries within 30 days, so wait until these inquiries are done before shopping for auto financing. You will receive notification when the investigations end.

When you choose an affordable used car and save up a large down payment, financing is easier to obtain, even if you have some credit problems,. Every dollar you put down reduces the loan amount. Lenders are more willing to take a risk on a modest amount because it increases their chances of recouping the money if you default and they have to repossess and sell the car.

Do not rely on dealerships for used car financing, recommends Warren Clarke, editor, Edmunds.com, an auto research site. Search for lenders on your own before car shopping. Your current bank or credit union might be willing to approve you, even with credit problems, if you have a long customer history. Otherwise, expand your search to other banks and finance companies. Dealers get money when finding you a lender, so you usually get a better interest rate if you do your own legwork. Bankrate.com writer Karen Kroll warns that some even imply your credit is worse than it really is to fool you into paying more interest.

Unscrupulous car dealers use poor credit and vehicle financing to scam buyers. Kroll warns that some call customers weeks after the sale, claiming the financing fell through, when the dealer should be able to get immediate approval. Typically they demand more money, ask you to sign a higher interest contract or try to make you take a different car. CarBuyingTips.com writer Jeff Ostroff advises looking for a "subject to financing" clause in your contract, which gives an opening for this scam. Getting your own preapproved loan prevents dealerships from cheating you this way.

Will Leasing a Car Improve My Credit Score?

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Unlike a loan, a car lease allows you to use a car as your personal vehicle without having to purchase it. Because lease payments are typically cheaper than loan payments, leasing provides you with the ability to drive a car you may not be able to afford had you purchased it using traditional financing. Like an auto loan, however, a car lease appears on your credit report and influences your credit score.

When you sign a car lease and drive away in your new vehicle, the dealership reports your account to the credit bureaus. It's up to the dealership which credit bureaus to file reports with, but once it does so, the entry appears as an installment account on your credit record. Each time you make a payment, the account trade line updates to reflect the activity. Paying your car lease on time each month has the same positive impact on your credit score as timely loan payments.

Not everyone receives the same credit boost from having a car lease on his credit history. The degree to which any information on your report impacts your score depends not only upon the type of entry but on information from other creditors. While a summary of the factors that influence your credit score are publicly available, the precise credit scoring formula is a trade secret.

Payments you make to creditors and lenders make up the bulk of your credit rating -- 35 percent. Your car lease remains on your credit report for seven years after you pay the lease in full. Thus, your credit continues to benefit from the car lease long after you return the vehicle.

Missing just one payment on your car lease can have a disastrous effect on your credit scores -- costing you up to 80 points. If you miss more than one lease payment, your credit rating suffers further and the dealership will likely repossess the vehicle. Because you signed a contract agreeing to make payments each month for the full lease term, the dealership can hold you accountable for the unpaid portion of the lease by filing a lawsuit against you. If the dealership wins its suit, the credit bureaus enter a court judgment on your credit report. A court judgment brings your scores down even more.

You may not be the only person who feels the positive or negative effects of a car lease on your credit report. If a friend or family member co-signed the lease for you, her credit also feels the impact. Like a loan, an auto lease appears on the credit report of both the borrower and the co-signer. Thus, your regular payments -- or lack thereof -- either boost your loved one's scores or cause lasting damage to her creditworthiness.

Is Interest Paid on a Car Loan Tax Deductible?

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Although you cannot deduct interest you pay on a car loan for a vehicle you drive entirely for personal use, you can deduct the interest as a business expense if you use the vehicle for business. The amount of deduction you are allowed to take depends on how often you use the vehicle for business reasons and how frequently you drive it for personal use.

If you use a vehicle partially for business, but sometimes for personal use, you can deduct only the portion of expenses related to your business. It is not uncommon for small business owners, in particular, to use the same vehicle for both business and personal purposes. Under IRS guidelines, driving the vehicle when traveling from your home to your place of business is considered commuting miles and not business travel. Since the vehicle is not used exclusively for business, you cannot deduct the full amount of interest you pay on the auto loan. Even if a vehicle is titled in the name of your business, you must still divide expenses between business and personal use. A portion of your vehicle expenses may also be allowed as a deductible business expense if you work from a home office. To qualify as a business expense, you must travel from home to a location where you transact business.

Enter expenses for business use of a vehicle in Part II Schedule C if you are the sole proprietor of a business. Go on to Part IV of the form. Enter the month, day and year you placed the vehicle in service for business purposes. If you originally bought the vehicle for personal use and then converted it to business use later on, the date on which you started using it for business is considered the date when you placed the vehicle in service. Schedule C requires you to indicate whether the vehicle was available to you for personal use during times when you were not operating your business and whether you or your spouse has another vehicle for personal use.

Complete Part V, Section B, Information On Use of Vehicles on Form 4562 if you are taking a business deduction for a vehicle or vehicles not reported on Schedule C. Use Form 1065 to report a partner's share of deductions and Form 4562 to provide information related to the business use of a vehicle. Keep careful written records to support business expense deductions. Log the date, mileage and purpose each time you use the vehicle for business.

You may deduct interest you pay on a car loan you use to purchase a business vehicle as long as the expense meets the standard for an ordinary and necessary expense. The IRS defines an ordinary expense as any expense common in your trade or business. Deductible business expenses cannot be related to a capital expense. A capital expenditure is a cost that is not fully deducted in the year the expense is paid. Since it has a useful life that will last longer than the tax year, the cost must be depreciated over the life of the asset. However, for accounting purposes, costs that recur each month -- such as interest payments on a loan -- are often treated as expenses.

What Is the Rule of Thumb for Auto Depreciation?

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Depreciation is the allocation of a long-term asset's cost over its useful life. Examples of long-term assets include buildings, computers, equipment and cars. The value at the end of a car's useful life is known as its residual value or salvage value. Car buyers should be aware of the effects of depreciation on new and used car values over time, especially when negotiating a fair price with a dealer.

Edmunds, an information company for new and used cars, suggests that a new car loses about 11 percent of its value as soon as it leaves the dealership. In the first five years, which is generally the useful life of a new car, the depreciation rate is 15 to 25 percent per year. A new car is worth about 37 percent of the purchase price after five years. According to these general rules of thumb, a new car purchased for $10,000 is worth about $8,900 [$10,000 x (1 - 0.11) = $10,000 x 0.89 = $8,900] the minute it leaves the dealership and about $3,700 ($10,000 x 0.37) after five years.

Depreciation has no impact on a buying decision if the objective is to use the car as long as possible. However, as Edmunds notes, depreciation rates matter if the plan is to trade in the car every few years for newer models. Depreciation rates vary. For example, a Ford is likely to depreciate faster than a Lexus or a BMW.

Online car retailer CarsDirect suggests a way to estimate used car costs, including using applicable sales and use taxes. First, the selling price should be determined using Edmunds, Kelley Blue Book and other sources for manufacturer's suggested retail prices. Second, the residual value after annual depreciation expenses should be calculated. CarsDirect suggests using the midpoint of a 15 to 18 percent range for the depreciation rate, which is about 16.5 percent. Third, the taxes can be estimated on this residual value.

For example, if a car was purchased for $20,000 two years ago, its residual value after years one and two are $16,700 [$20,000 x (1 - 0.165) = $16,700] and about $13,945 [$16,700 x (1 - 0.165) = $13,944.50], respectively. The buyer can then estimate the sales, use and other taxes on this residual value. It is only an estimate, because taxes are based on the actual selling price, which might be different from the residual value.

According to Bankrate's Lucy Lazarony, buyers should consult Edmunds, Autosite or other resources for up-to-date pricing information on new and used cars. This information should be used as a guide because actual prices depend on several factors, such as supply and demand, repair history, mileage and overall condition.

Can a Car Dealership Refuse to Take Cash for a Vehicle Purchase?

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A car dealership is within its rights to refuse to take cash for a vehicle purchase. Under federal law, businesses that price their merchandise or services in dollars have to accept dollars as payment. But accepting "dollars" doesn't necessarily mean accepting cash. Private entities are generally allowed to set their own rules on how they accept payment.

Look on the face of any piece of U.S. paper money and you'll see the inscription, "This note is legal tender for all debts, public and private." The key is that it says "debts," not "purchases." Creditors are legally required to accept cash as payment for any debt denominated in dollars -- meaning that the debt is for a stated dollar amount, rather than, say, British pounds or shares of stock. This requirement protects debtors, as it guarantees that if they have the money to repay their debts, they could convert it to cash, and a creditor couldn't refuse it.

The requirement to accept cash applies only to debts, however. According to the Treasury Department, there is no federal law requiring any private business or individual to accept cash as payment for goods or services. Businesses can set whatever policy works for them. That may mean accepting cash; it may mean accepting only certain denominations of cash; it may mean refusing cash or checks and accepting only credit cards. That's why a car dealership is free to refuse to take cash for a vehicle purchase.

If there's no legal obligation for a car dealership to take cash, then there's no legal obligation for it to tell you why, so you might not get an explanation. Common reasons for declining cash include security concerns, the hassle factor and federal paperwork requirements. Accepting cash for car purchases would result in the dealership having tens of thousands of dollars in cash on hand, an inviting target for criminals. It could mean special trips to the bank for deposits. And under federal money-laundering laws, any business that accepts more than $10,000 in cash has to report the transaction to the Internal Revenue Service.

If a car dealership won't take your cash, you can try to find one that will. Or you can turn your cash into something the dealership might be more prone to accept, such as a cashier's check, a money order or traveler's checks. Purchasing such "monetary instruments" might also trigger an IRS report from the financial institution where you obtain it, but as long as the money comes from legitimate sources, there's no need to worry.

What to Do When You Can No Longer Pay for a Car Title Loan?

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Unlike regular car loans, car title loans do not provide financing for a vehicle but give a consumer cash to use for other purposes. However, a creditor who holds a title loan has the same rights as he would with a vehicle loan. If a consumer fails to make payments, a bank may seize the vehicle.

When a consumer obtains a car title loan, he signs a contract which states that a creditor may repossess the collateral if a consumer defaults on the loan. The lender may seize the vehicle without giving any notice to the borrower. However, many lenders may allow consumers to catch up on loan payments before starting the repossession process. It costs the bank additional money to tow, store and sell the vehicle.

A lender may be willing to negotiate the payment arrangements if you contact them promptly. If your financial problems are temporary, you may negotiate a temporary reduction of a monthly payment. The creditor may also postpone one or two monthly payments. If you have been laid off, you can ask the bank to refinance the car title loan to reduce the monthly payments. Request that any changes to your loan are done in writing and you receive a letter or a copy of the new loan contract.

If your creditor is not willing to negotiate the payment terms, you can try selling your car and paying off the title loan. Depending on how new the vehicle is and how long you have been paying on it, you may or may not sell it for the same amount that you owe to the bank. If you are "upside down" on the title loan, you will have a leftover balance. You are responsible for repayment of any balance left after the bank applies the sale proceeds. A bank may be able to add the balance to a car loan if you finance another vehicle or set up a personal loan for the remaining balance.

When everything else fails, you may turn in your vehicle to the bank. This is called "voluntary repossession." By doing this, you will reduce the creditor's repossession costs which you will be responsible for repaying. The bank will sell the vehicle and apply the proceeds to the title loan balance. You will have to repay any remaining balance and any costs incurred during the sale process. Even with voluntary repossession, a creditor may still report late payments and repossession to the credit bureaus. This negative information may prevent you from obtaining an auto loan in the future.

What Is a Good FICO Score for Buying a Car?

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The Fair Isaac Corporation tabulates credit information on consumers and businesses across the United States and uses the data to award credit scores known as FICO scores. Financial institutions use FICO scores to assess the level of risk involved in writing loans for particular individuals or entities. Lenders have minimum FICO score requirements for all credit products including car loans.

In 1956, Bill Fair and Earl Isaac founded FICO. Initially the company recorded data for analysis that Fair and Isaac believed companies could use when making business decisions. In 1958, FICO developed the first method of rating credit. In 1989, in conjunction with FICO, Equifax launched the first credit scoring beacon system. In 1991, TransUnion and Experian began using FICO scores. Experian and TransUnion later developed separate scoring systems that are similar to FICO scoring.

FICO credit scores range from 300 to 850, with higher scores indicative of stronger credit history. Most people have scores between 600 and 750. Financial divisions of car manufacturing firms usually offer the best terms to borrowers with FICO scores above 740. People with scores above 720 qualify for car loans through most finance companies, and scores of between 660 and 680 are the minimum required for car loans at most banks. Generally, people with higher scores pay lower interest rates, although many large banks charge flat interest rates regardless of credit scores.

FICO scores comprise payment history, balances owed, new credit, types of debt and average length of credit accounts. Payment history has the largest impact of the FICO factors and amounts to 35 percent of the overall score. Payments 30 days or more late remain on credit reports for up to seven years. Balances owed amount to 30 percent of the FICO score, and people with high balances score poorly in this category. Large numbers of credit inquiries negatively impact the scoring in the part of FICO that scores new credit.

Many people believe that their ability to qualify for a car loan depends entirely on their credit score. Lenders use other factors along with credit scores in the underwriting process. Loan applicants must provide income verification in the form of payslips or tax returns to prove that they can afford to pay back the loan. Banks look at applicants' levels of debt relative to their gross income when reviewing car loan applications. Generally, debt-to-income ratios on car loans cannot exceed 45 percent.

People with low credit scores or subprime scores can qualify for car loans, but they often pay extremely high interest rates. Some used car dealerships get financing from investment firms who cater to investors seeking high rates of return on their money. The car dealer gets immediate payment, and the investment firm receives monthly payments with interest rates close to 20 percent. These arrangements put investors at risk because subprime loans have high default rates. The loans do not benefit borrowers because they are not usually reported to credit bureaus and have prohibitively high payments.

How to Buy a Car With Less Than Perfect Credit

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A number of financing options exist for those in need of a new or used car provided you have good credit. Experian, one of three consumer credit reporting bureaus, says most credit scores fall between 600 and 750, with a lower score reflecting less than ideal credit.

However, there are creditors willing to finance your car purchase under strict terms if your credit is not perfect. Assuming you cannot put off buying until your credit improves, carefully explore options for the loan that is right for you.

Instructions

Determine your credit score. Lenders will obtain your credit score when you seek financing, but you should have that information on hand before applying for a loan. Visit AnnualCreditReport.com to obtain free copies of your three credit reports, and pay the small fee to obtain one of your credit scores. Check your credit reports for potential inaccuracies, correcting mistakes with each bureau.

If your credit score is within Experian's "good" range, you may get credit without a problem. Other factors include your residence, job and down payment.

If your score is below 600, expect some trouble securing credit, at least with favorable terms.

Determine your budget. If you are set on a expensive car, your chances of obtaining a loan can be diminished. Even if you are approved for financing, your monthly payment could weigh you down.

Ideally, you should determine a budget based on income and expenses. A good online budget calculator can be found at www.bankrate.com; a link is offered in the resource box below.

Be realistic. When buying a car, you not only have to consider monthly payments but insurance and maintenance. Up-front costs include vehicle registration, taxes and tags and in some areas, property taxes. Include those costs in budget planning.

Shop for a car following the criteria established when you set up your budget. With less than perfect credit, lenders may expect you to come up with a sizable down payment of 20, 30 or even 40 percent.

Shop for a loan. Commercial banks, credit unions and other financial institutions are potential lenders. Before applying, explain to a loan officer your credit history and ask what rate is available. Do not authorize access to your credit report as that "pull" will lower your score. Only after you find a lender with a potentially favorable offer, fill out the application and give it permission to review your credit. Once you are preliminarily approved, a loan underwriter will likely follow with a formal approval.

What Are Some Requirements to Obtain a Car Loan?

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Because of subprime auto lenders, you don't need perfect credit to get a car loan. Still, you have to meet certain requirements to become eligible for an auto loan.

Regular monthly income is necessary to qualify for an auto loan. Auto lenders vary, and you may need to provide several copies of paycheck stubs to qualify. If you have good credit, a lender may approve your auto loan application without verifying employment or income. Because paycheck stubs include your address, lenders can use this information (along with a driver's license) to verify your residence.

Applicants with good credit do not normally require a co-signer for an auto loan. However, if you have no credit or a bad credit history, using a co-signer with a good credit rating can help you get approved for a loan.

Auto lenders do not require a down payment. But when trying to keep your monthly payment affordable, a down payment between 10 and 20 percent of the sale price can reduce the amount you finance with the auto lender.

What Is the Difference Between Buying & Leasing an Automobile?

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Purchasing a new vehicle requires a great many choices. The car buyer must decide on make, model, options and even the color of a new vehicle. The decisions require research and comparison -- shopping to find the automobile that best meets the buyer's needs. In addition to searching for the right car, the car shopper must determine the best financing option to acquire the car. The choice between a car loan and a lease depends on the individual buyer and his financial situation.

The down payment is usually higher for a purchase than it is when leasing an automobile. In fact, in some cases it's possible to lease a vehicle with no money down other than the first month's payment; though dealerships arranging leases often expect a down payment, third-party leasing entities such as credit unions might not. The higher upfront costs of buying a car compared to leasing may be one factor in determining which financing option is appropriate.

The monthly payment for a lease is lower than the payment for purchasing the car. On the other hand, car buyers do have the option of paying off the vehicle and eliminating the monthly payment, while leasing requires the individual to remit a monthly payment for the entire length of the lease term. A lease agreement for an automobile essentially requires the driver to pay only for the depreciation of the vehicle that takes place during the period of the lease (plus some profit for the leasing agency). A loan to purchase the vehicle requires the buyer to pay for the total cost of the vehicle, which means the car buyer pays more overall for the vehicle, but then keeps it at the end of the loan term.

A lease allows car shoppers to obtain a more expensive vehicle than is possible with a vehicle loan. The car buyer may find it more difficult to qualify for a loan on an expensive automobile because of the higher monthly payments. For those with credit difficulties, a lease agreement may provide an opportunity to obtain a better car than they would be able to obtain with a car loan.

At the end of a lease agreement, possession of the vehicle returns to the leasing company, though the lease arrangement may include an option to purchase the vehicle at the end of the term, often for a price predetermined at lease signing. Those with a car loan are the owners of the vehicle at the end of the loan. For those who prefer to change vehicles frequently, a lease agreement is a good option. Those who prefer to keep the car for a longer period will do well with a car loan.

Does a Car Dealership Have to Run Your Credit?

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Depending on your financial situation, a car dealership may have to run your credit. In some instances the dealership may try to convince you that the Patriot Act requires to complete a credit application, which is not true. The salesperson may run your credit with just your drivers license without your permission. If you are worried about this, explicitly state that you do not want your credit run when you present your license.

Leasing a car means that you agree to keep the car for a specified period and only drive up to a certain number of miles per year. At the end of that term, you must return the car to the dealership, where you can walk away or negotiate to keep the vehicle. If you are interested in leasing a car, the only way to do so is through the dealership. Since the dealership would finance a lease, you would have to consent to having your credit run in order to lease the vehicle.

If you apply for a car loan through your bank or another financial institution, you are bringing your own financing to the dealership. This generally means that you have no need for other financing when you are ready to buy a car. Unless you want to try to get a better loan rate through the dealership, you are under no obligation to fill out a credit application at the dealership and have your credit run.

If you arrive at a car dealership to buy a car and do not have your own financing or cash, you are likely planning on financing through the dealership. If this is true, you will have to have your credit run. The dealership cannot give you a car loan or even an interest rate until your credit has been run.

You may plan to pay cash for your next vehicle. Generally this means that you have no need for a car loan or lease. If this is true, you have no reason to fill out a credit application. As long as you have enough cash to cover the cost of the car, including any applicable taxes and fees, you do not need to have your credit run at the dealership.

How to Calculate Residual Values

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An asset is only good for a certain period of time; that is, it only provides value or creates income for a certain time period before it is no longer useful. Residual value is the value of an asset after its useful life. As such, it is commonly used to determine depreciation expense for the income statement or liquidation value for larger transactions like bankruptcy.

Instructions

Determine the scrap value of assets by contacting a junk yard, scrap metal, or vehicle parts store for scrap value quotes which are based on weight and quality. While assets provide no additional value they may have scrap value; that is, they could be composed of valuable materials like metal or gold.

Determine the residual value of real estate. In general, the residual value of real estate is the pure land value without the general structure. Obtain comparable lot value (land with no structure) prices from your favorite real estate agent.

Calculate the residual value for a company. In general, the residual value for companies is referred to as the book value which is also Stockholders' Equity on the Balance Sheet. Stockholders' Equity can be calculated by subtracting all the liabilities from assets of a firm. For instance, if assets are valued at $10,000 and liabilities are valued at $$6,000, then the residual value (stockholders' equity) is $10,000 - $6,000 = $4,000.

Cheapest Way to Buy a Car

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Buying a car is one of the largest purchases you'll make, so it's always a good idea to try to pay as little as you can. Paying less for a car doesn't mean you need to sacrifice reliability; you can find plenty of bargains on good cars. There's no golden rule when buying a cheap car, but you can use a lot of different strategies when browsing for a new vehicle.

Buying used is almost always cheaper than buying new. Modern cars are built better than older cars, so when you buy used you're typically not buying a car that's going to break down in a year. New dealers often sell used cars that come with dealer warranties that cover most major problems for a certain period of time. Used car dealers usually sell older model cars and sell the vehicle "As-is," which means you're not covered if anything goes wrong with the car. You can also completely bypass financing costs with used cars if you have the cash to purchase the vehicle outright.

If you decide to buy a new car, opting for the lower level trim will save you thousands of dollars. Each car model comes in different styles of trim, which essentially means that one car model has better features and technology than another. Most models come with two to three levels of trim, with the lowest level costing the least amount of money to purchase. You'll often forgo power windows and locks, special features such as a temperature gauge and safety features such as traction control, but your wallet won't take as much of a hit.

If you're stuck between buying a car and leasing one, choose the lease option to save money. Leasing means that you're basically borrowing the car for an allotted amount of time, which is typically two to three years. Once your lease term is up, you return the car to the dealer. You only pay for the depreciation costs of the car plus finance charges. For example, if you leased a $15,000 car for two years, and the estimated resale value was $9,000 after those years, then you would pay the depreciation costs of $6,000 plus finance charges.

Auctions can be a gold mine if you know how to bid effectively and snag a great deal. Auctions can consist of police auctions, government auctions and just general car auctions. The downside of an auction is the cars come with no warranties, and it's impossible to judge the exact condition of the car before you purchase it.

There's nothing cheaper than free. Some companies offer free cars to applicants who apply for the free car program; the catch is you're driving a car that's littered with advertisements. Free car programs are usually available in large cities or universities. The entire point of the car is so that the advertisements will generate attention.

Rental companies regularly sell their old rental vehicles for far cheaper than you'll find on a dealer lot. The only problem with the bargain is you often have no idea if the car is actually in good shape or if there are underlying problems. Rental cars also suffer from past drivers who pushed the car beyond its limits and didn't take care of the vehicle.

You'll usually find better deals from private sellers than you will on a dealer lot. Buying from a private seller means that you're buying used, and that can lead to the proverbial question of why the person is selling the car. Many people sell their vehicles privately because they can get more for them than if they traded them in, but others will sell their used cars because there is a major defect in the vehicle. If possible, take the vehicle to a mechanic before you dish out the money to the seller.

Operational Definition of Vehicle Financing

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Most people do not pay cash for their vehicles. Instead, they borrow money to pay the dealership and then pay back the money in installments, usually paying each month. An understanding of this process, known as vehicle financing, can help most people who are interested in getting a new vehicle.

Financing is giving money to a person, company or agency. The purpose is to fund the purchase -- or in some cases, lease -- of an item or completion of a project. Financing also refers to the monies loaned for this purpose. Vehicle financing refers to giving money to a person, company or agency for the purchase or lease of a vehicle. Vehicle financing also may refer to the funds provided for the vehicle lease or purchase.

When a car dealership advertises the vehicles it has for sale, the dealership usually says that "financing is available." This means that the dealership will help you find someone to loan you the money you need to lease or buy the vehicle you want.

Vehicle financing allows you to lease or buy a vehicle even if you do not have enough money immediately available to cover the costs associated with the lease or purchase. Subsequently, you can get a car when you need it, not just when you've saved up enough to pay the entire cost.

Vehicle financing is essentially a six-step process. First, you gather information about your financial situation, such as your bank statements and pay stubs. Then you fill out an application for the loan and provide it to the dealership. The dealership passes it on to a bank or finance company, which reviews your application and supporting paperwork. The finance company evaluates your debt-to-income ratio, credit score and employment to determine the risk it would be taking by loaning money to you. If all goes well, the financing company approves your loan.

The finance process is not complete until the finance company or bank pays the dealership and all the paperwork is signed. Probably the biggest misconception about this process involves who actually provides the funds; car dealerships are not lenders and therefore do not provide financing, but they may screen applicants to see if it's worth going forward with an application. Car dealerships sometimes mark up the interest rate suggested by the finance company or bank.

How to Request a Settlement Amount to Pay Off a Car

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Paying off your auto loan can give you extra money to use every month, and it can also save you a substantial amount of money in interest payments. When the loan balance is low enough that you can pay it off, you need to learn the exact payoff amount. If you only pay the principal balance, it probably will be insufficient to pay off the loan because interest has been accruing. Knowing the settlement amount enables you to pay the amount needed to close the loan.

Instructions

Contact the lender regarding the payoff amount for your car loan. Depending on the lender, there may be a formal process for requesting the payoff amount. The customer service representative should be able to point you in the right direction. In some cases, the customer service representative can provide you with the settlement amount over the phone.

Complete the necessary paperwork to get the payoff amount from your lender. Some lenders have a form you must fill out to obtain the payoff amount for your loan. The form typically requires personal information, such as your name, your address and phone number as well as the loan number.

Access your car loan account information through your online account. Some lenders provide a way to access your account information online with a secure login. When reviewing the online information, make sure you focus on the payoff balance and not the current account balance.

Visit the lender in person to talk to an account representative. In many cases, you can simply go to the bank and provide identification to get important information about your loan. The representative typically can provide the payoff amount on the spot.

How Can I Get Car Financing If I Have Absolutely No Credit?

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Getting a car loan can be difficult when you have bad credit, but when you have absolutely no credit, it can be an even more trying process. If you have never used credit, it does not necessarily mean that you cannot get an auto loan if you need one. At this point, it may simply take a little more time to find what you need.

If you need to get an auto loan, you may want to try to establish some credit first. If you can do so several months before you need the car loan, this would be best. You could open a checking account and a credit card. Then make some small purchases with your credit card. After you make purchases, pay off the balance as soon as you get the statement. Once you do this for a few months, it will be reported to the credit bureaus and you can establish a credit profile.

Even if you do not want to take the time to establish your credit in advance, you can still get a car. Some dealers use a system known as "buy here, pay here." With this type of financing, anyone who has a job can get approved for a loan. You get the car and then go to the dealership to make your payment on a regular basis. Usually, you must go to the dealer every week to make a small payment.

Lenders who specialize in guaranteed approval loans such as "buy here, pay here" dealers have to charge higher interest rates on the loans they offer. They know approximately how many people will default on their loans overall. They factor this into their calculations and then charge everyone else a rate that will more than make up for these losses. This means that you will essentially be paying for other people who have their cars repossessed. You should be prepared to pay a high interest rate with this type of loan.

When you have no credit and you want to buy a car, one way that you can improve your odds of being approved for a loan is to make a large down payment. If you can make a larger down payment on the car, it removes part of the risk for the lender. If you put a larger down payment on the car, it makes it less likely that you will be willing to let the car go to a repossession. This can give you a better rate and help you get approved.

How to Pay Back an Auto Loan With Interest

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Many people borrow money to pay for a new or used car purchase. Taking a loan for the purchase is a convenient and efficient way to acquire a new vehicle if you do not have the money on hand to cover the purchase outright. Most, if not all car loans, however, require that you pay interest on the unpaid balance, computed as an annual percentage rate (APR). The APR for your loan should be clearly stated in your loan agreement. Most consumers pay their car loans and interest in combined monthly installments over several years.

Instructions

Review your loan agreement to determine your loan repayment terms. Your lender should have specified terms such as the loan amount, repayment period and annual percentage rate. It is always a good idea to read your official loan documents carefully to verify this information.

Verify the amount of your monthly payment. The lender should have told you this information at the time the loan was executed. If you are not certain of the amount you must pay each month, you can determine your payment by dividing the total principal amount of the loan by the number of months in your repayment term. The product will be your monthly principal payment. To calculate your monthly interest payment, multiply your monthly payment by 12. Multiply the product by your annual percentage rate. Divide this product by 12 and add the resulting amount to your monthly principal payment. This final calculation should yield your total monthly payment, including interest.

Mail your monthly payment or transfer it online to your lender on or before the payment due date each month. Your loan agreement should state the date the payment is due as well as an address or website to send your payment to or through. If you don't know where you should send your payment, contact your lender for details.

Is it Better to Take Over a Lease or Get a New Lease?

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An auto lease assumption may offer several money-saving benefits, such as a lower down payment, a cheaper monthly payment or a shorter term than a new lease. If assuming a lease, the original lessee has already provided a down payment and paid applicable lease fees, so you may not have to. Compare the price differences between a lease take-over and a new lease to determine which offers a more affordable option.

To compare the costs of new-car leasing and lease assumption, such as down payment requirements, mileage allowance, monthly payment amount and term, visit the websites of manufacturers and lease assumption companies. LeaseTrader.com and the SwapaLease website offer lease assumptions; you'll find various makes and models of available lease transfers. If you want a specific vehicle, you may not find it available for assumption. If you're flexible, you might find a past model year that suits you and saves you money.

When reviewing manufacturer lease offers, note any down payment requirements. Often, you'll have to provide thousands of dollars in addition to taxes and fees to achieve the advertised monthly payment. A lease assumption doesn't usually require a down payment aside from motor vehicle or state fees. Most people looking to transfer a lease have already paid the lease down payment or fee requirements and want to terminate their contract despite the loss. Some leasing banks charge a transfer fee, but the cost is much lower than new car lease down payment requirements.

If you pursue a brand new lease, you can choose your mileage allowance, usually between 10,000 and 18,000 miles per year. Carefully review the mileage left on an available lease assumption to ensure you can stay within the mileage that remains. alease assumption websites advertise remaining mileage for available leases. If you need to drive 12,000 miles per year, a 10,000-mile-per-year lease isn't going to work for you. A new lease might be a better option. Leasing banks charge up to 20 cents per mile over the contracted mileage allowance, which can prove expensive.

If you can find a vehicle that you want to lease by assuming another person's contract, you are likely to save money and enjoy a shorter term. However, you are responsible for excess wear-and-tear fees and vehicle repairs. Before you assume another person's lease, have a mechanic check the vehicle over. If the vehicle hasn't been maintained well, you may have to pay repair costs that aren't covered by the manufacturer's warranty. Also, ensure that the vehicle's body is in excellent condition. If damage exists on or in the vehicle, have the owner fix the issues or plan to fix them yourself. Otherwise, you'll end up paying for damages once you return the leased vehicle.

How to Get a Second-Car Loan

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Are you ready to buy a second car and need a loan? Qualifying for your second-car loan is similar to qualifying for your first-car loan. There are some important additional considerations, however, to take into account before you sign on the dotted line: Do you make enough money? Should you use the same lender? How much car can you afford? These are all common questions with relatively easy answers if you tap into the appropriate resources.

Instructions

Calculate your debt-to-income ratio. This ratio tells lenders how much extra money, or "disposable income," you're able to spend on additional items, like a credit card fee or another monthly car loan payment. To find this percentage, simply add up your bills (including your monthly rent/mortgage, student loan payments and car payment).

Divide this number by how much money you make each month after taxes. For example, if you owe $600 in bills each month and your net monthly income is $1,000, then your debt-to-income ratio is 60 percent. Most lenders prefer this ratio to be below 50 percent, but the ideal percentage will depend on your income and credit history.

Decide how much you can afford to spend. By using online loan calculators such as the ones found at Bankrate.com, you can easily figure out how much a new loan will cost you each month.

Apply for your new loan. Contact your local bank or credit union to submit an application. Your loan officer should inform you within one or two business days whether you've been approved or declined. If you have paid your first-car loan as agreed, consider applying at the same financial institution, as they may offer a preferred rate or reduced fees.

Go shopping. Once you're approved, you need to find a new or used car that meets the bank's guidelines. Usually, this means that the bank won't allow you to purchase a car that is worth less than the sale price, has high mileage or has been in a major accident. Most lending institutions use Kelley Blue Book (kbb.com) to determine a vehicle's worth. Use this resource as you shop to determine if you're getting the best value for your money.

Consider consolidating your first-car loan with your second-car loan, especially if you've been offered a lower interest rate. If you've negotiated a good deal and are borrowing less than the value of the vehicle, you can use the cost savings to refinance your first-car loan. Request the payoff amount from your lender and discuss this option with your loan officer.

Finalize the deal. Once you've found the vehicle you'd like, give your loan officer the details of the transaction. She'll need to know the value of the vehicle, who's selling it and if the seller owns the vehicle. Your loan officer will assist you in paying the seller or the seller's lending institution the required money in a preferred method of payment. Congratulations---you now have a second car.

What Do Banks Look for in Car Loans?

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Banks look at various pieces of personal, credit and vehicle information to determine whether to extend a loan. Then, according to the information it gathers, a bank sets a loan interest rate and term. You may also find that you are required to provide a down payment or may face term restrictions if your application is approved.

To apply for a loan, you must provide your potential lender with your Social Security or Tax Identification number, which allows the lender to view your past credit history. Your credit report lists any current accounts that you've had in the past, such as car loans, mortgages, personal loans or other lines of credit. The lender views your payment history on all reported accounts. Your credit score may be affected by past due accounts, charge offs, judgments or lack of credit, which may result in the decline of your application. A positive payment history and length of time on open accounts are favorable.

Aside from your account history, you must have verifiable income to obtain an auto loan. Banks prefer that borrowers have a stable income, so expect to provide at least two years worth of employment information to your bank, including names of employers, positions and income. Banks also like to see a stable address history, so you'll have to also provide at least two years of address information. Lenders will take a new job or address into consideration if time was established with a past employer or at a previous address.

You must have enough income to pay for your auto loan, which your bank will verify. Your lender will determine whether or not you can afford an auto loan by assessing the amount of debts you pay out each month in comparison to how much money you make, known as your debt-to-income ratio. Someone who makes $20,000 with little debt responsibility might obtain a loan approval while someone who makes $100,000 with maximized debt might not. Expect to prove your income by providing your lender with your most recent pay stub or copies of tax returns if you're self employed. Other sources of income are also considered; your bank will let you know which documents are acceptable for proof of income.

Lenders base the amount of an approved auto loan on a vehicle's market value. Using the car's year, make, model and features, the lender determines a vehicle's worth. Based on your credit, you may borrow up to 120 percent of the vehicle's value or as low as 60 percent with poor credit. For this reason, you may be able to roll taxes into your loan or find you have to provide a sizable down payment. Many banks have vehicle year and mileage restrictions for auto loans. For example, your lender may not offer loans on vehicles more than five years old or with more than 100,000 miles on the odometer. Restrictions differ by bank.

The Average Depreciation of a Vehicle

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Buying a new vehicle has its advantages, from a full manufacturer warranty to the peace of mind that comes from knowing that you're the first owner and no one else has abused or neglected your car in the past. But new cars also have a strong tendency to depreciate, or lose value, rapidly.

Unlike other large purchases, such as homes, cars generally lose value consistently for the length of time they're on the road. In part, this comes from the fact that cars become less mechanically sound and systems develop a higher likelihood of failure, meaning inconvenience and higher repair costs for older vehicles. In addition, car buyers have new models to choose from, which brings down the value of used cars, including those that aren't very old, by comparison. Even special edition or collectible models often lose value, though they may start at a higher price point or depreciate more slowly because of high levels of demand.

According to the website Auto Evolution, a typical new car will depreciate between 15 and 20 percent as soon as its sold. This initial depreciation comes solely from the car's losing it's "new" status and doesn't depend on mileage, damage or condition. Over the course of five years, Edmunds notes that even the cars that hold the largest portion of their values depreciate around 50 percent. Cars with low residual values can depreciate as much as 80 percent over the course of a five-year ownership period.

Many factors affect an individual car's level of depreciation. A car's safety ratings, purchase price, reliability reputation and production numbers all weigh heavily on depreciation. Other less-obvious factors include the region where you live, since harsh winters and salted roads can cause a car to rust more quickly than a vehicle in a warmer climate. The condition of the economy also plays a role, with the resale value of a car ultimately dependent on what used car buyers are willing to pay and can actually afford.

When you buy a car and resell it years later, the amount of money you receive will depend on the average depreciation for that model, as well as factors like mileage, overall condition and your own negotiating skills. This will determine how much money you get to put toward a new car, either through a private sale or a trade-in at the dealership. But depreciation can also have consequences if you lease or finance your car. Most lease agreements include a purchase price for the driver to buy the car outright at the end of the lease period that ends up being higher than the depreciated resale value of the car. If you finance your vehicle, the initial depreciation will mean that you owe more than your car is actually worth for a time, until you make enough payments or the depreciation rate slows.

Monday, May 30, 2011

Security Interest and Legal Default

Personal Items and Breach of Peace

Redeeming Your Repossession

Preventing a Repossession

Car Loan vs. Title Loan

Title Loan Qualification Process

Title Loan Collateral Qualification

Title Loan Proceeds

Bank Correspondence

Inspection Before Return

Return the Vehicle

Inspection After Lease Return

Sunday, May 29, 2011

Private Seller

Dealer

Payoff Amount

Getting More Money for Your Car

Saturday, May 28, 2011

Instructions

Wednesday, May 25, 2011

Repossession

Credit Risks

Legal Action

Considerations

Tuesday, May 24, 2011

Improve Credit

Loan Term

Down Payment

Shop Around

Instructions

Finance Application

Down Payment

Interest Rates and Term

Other Options

Lease Termination

Negotiating a Purchase

Lease Transfer

Instructions

Sunday, May 22, 2011

Significance

Benefits

Warning

Preparation

Price and Down Payment

Sources

Warning

Saturday, May 21, 2011

Credit Report Entry

Credit Impact

Warning

Considerations

Friday, May 20, 2011

Business Use

Deducting Expenses on Schedule C

Other IRS Forms

Difference Between Expense and Capital Expenditure

Thursday, May 19, 2011

Facts

Significance

Calculations

Tips

Wednesday, May 18, 2011

Legal Tender

Purchases

Reasons

Alternatives

Tuesday, May 17, 2011

The Legal Aspect

Negotiating With Lender

Selling the Vehicle

Voluntary Repossession

Saturday, May 14, 2011

History

Features

Effects Of Credit History

Misconceptions

Warning

Friday, May 13, 2011

Instructions