January 2012 ~ Managing a Car Loan

Tuesday, January 31, 2012

How Does a Car Loan Improve Credit History?

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FICO, the largest credit score company, explains that there are many ways to improve credit history. They all involve responsible financial management, like keeping modest credit card balances and paying all bills by their due dates. Car loans are reported on credit reports so they help improve the credit history if they are paid as agreed.

A car loan is an installment loan given specifically for the purchase of a vehicle. It is not a revolving line of credit like a charge card that provides a person with a certain spending limit that can be used to buy anything, as long as the total purchases do not exceed the limit. Some car buyers get approved for a certain amount of money before car shopping, while others choose a vehicle and then get financing on their own or with the dealer's assistance. The Lease Guide car buying website explains that dealerships shop for loans rather than financing vehicles themselves.

Qualifications for getting a car loan are the same as those for other types of credit. The lender reviews a person's credit reports from Equifax, Experian or TransUnion or the three-digit credit score compiled from that information by FICO or another provider. People who pay their bills promptly and who do not have large outstanding balances or finance-related court judgments usually qualify for vehicle financing easily. Those with spotty credit histories may have problems. They may be turned down or offed sub-prime loans with high interest rates.

Car loans improve a person's credit history if they are handled responsibly, regardless of whether or not the borrower has had past credit problems. FICO explains that it puts a heavy emphasis on payment history when calculating scores, so on-time car loan payments are a positive influence. Lenders like to see a variety of account types, according to financial columnist Liz Pulliam Weston of MSN Money. Credit cards are popular, but they are revolving credit lines. Car financing adds an installment loan to the mix.

A car loan cannot fix bad credit by itself. If the car buyer makes car payments on time but shirks other bills or maxes out credit card limits, the credit score will go down because FICO considers every account.

Mishandling a car loan is very serious. Late payments hurt the credit score, but most lenders include a provision in their contracts allowing them to repossess vehicles as soon as loans go into default, according to the Federal Trade Commission (FTC). In most states they do not have to give any notice before seizing a car, and repossessors can even take vehicles from private property. This is extremely harmful to the person's credit reports, and a vehicle repossession remains on their Equifax, TransUnion and Experian records for seven years, the FTC explains.

Can I Get a Car Loan If I'm Under 18 and My Parents Cosign?

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A car loan is a legally binding contract. In most states, it is not possible for a minor under 18 years of age to enter into a legal contract. As a result, it is necessary for someone over the age of 18 to cosign on the loan and on the car title, which is also a legal contract. If a parent cosigns, you should have no problem obtaining a car loan.

The first step to obtaining a car loan as a minor is to ensure the loan is legal. For this, in most states, you will need to have a person over 18 years of age cosign on the loan. Typically, this is a parent, but it may be any individual willing to cosign on your loan including an aunt, uncle, mentor or friend. This person is technically the individual with responsibility for the loan since he is the only one legally permitted to enter the contract at the time it is signed. If a lender offers to extend you a loan without a person over 18 present, you should be aware that this lender is not following the law.

A second factor to consider is your status as a borrower, that is, your credit. If you are under 18, you are unlikely to have much credit history. Your credit score, even if you have never missed a payment on other debts you may have, will be low. If your age didn't legally necessitate a cosigner, your deficient credit history would be reason enough for a lender to require one on your auto loan.

Since both legally and financially you will need a cosigner, the best option is to approach a parent with the problem. Your parent can sign the loan with you, and you will still gain the benefit of owning the car and paying off the loan. If you default on the loan, however, your parent will be held responsible as well, and this can present a problem. Your parents will be wise to monitor your payments so their credit is not jeopardized.

Once you turn 18, you can legally remove your cosigner from the loan. You will have to apply for modification, and the lender may change the terms of the loan without a cosigner present. This may make modification unattractive because it can become more expensive. But through such modification, you will benefit greatly from the improvement to your credit score that results from paying off the loan on your own.

The Best Ways to Refinance a Car

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Car loans are multiyear agreements that are more flexible than people realize. If you signed up for a car loan that had a high interest rate or you cannot make your current payments, you may want to look into refinancing your car loan.

There are many reasons why people should consider refinancing a car loan. For the young car buyer who was forced into a high interest rate when they purchased their car a few years ago, it is the chance to lower the interest rate on the loan and make the payments more affordable. If your credit was bad when you got your car loan and you had to have a co-signer and a high interest rate when you got the loan, improved credit can remove the co-signer and lower your monthly payments. If your income is reduced and you can no longer afford your car payments, refinancing is a way for you to reduce your payments.

One of the best options you have for refinancing your car loan is through your current lender. Even if you are a few payments behind, your current lender may be interested in refinancing your auto loan to help you get caught back up on your payments. Lenders deal with refinancing auto loans everyday, and it is something that many financial institutions use to help people afford their cars rather than having the cars repossessed.

If your current lender will not help you, check with other lenders. Be sure to take notes and compare the offers you get to make sure you are getting the best possible offer. If you use the Internet to find lenders, be sure to call the lenders before you fill out any information on their website. Ask questions about their loans and feel confident that they are a reputable organization before you offer them any of your personal information.

If you are trying to refinance a car you purchased new, contact the dealership where you purchased the vehicle to see if you can refinance there. The advantage of refinancing through dealerships is that they have relationships with lenders and get you a variety of deals to choose from. A dealer can also try to work a refinancing deal back through the manufacturer and get you a very low interest rate.

In most cases, the process of refinancing a car loan extends the length of time you will be paying on the car. If you have paid two years on five-year loan and then refinance with another five year loan at a lower interest rate, your monthly payments will drop because you are financing less money at a lower interest rate but you will be paying for the car for seven years instead of five. If you are refinancing an older car, you may want to get an opinion from a certified mechanic as to whether or not the car will outlive a loan extension.

How to Figure Out What Kind of Interest You are Going to Get in a New Car Loan

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It is difficult to guess what interest rate you will get with a new car loan. If you go through the manufacturer's bank for incentive rates, such as 0, 1.9, 2.9 or 3.9 percent, you will either qualify or you will not. Traditional lenders use a tier scale, meaning your credit score and credit history, amongst other qualifying information, will be used to determine which rate you will get, which is not always the lowest rate advertised. It is advisable to obtain a preapproval before you shop for a new car so you know your interest rate.

Instructions

Go to the manufacturer's website of the new car you wish to purchase to view the month's incentive rates for new cars. The manufacturer's offer is often impossible for traditional lenders to beat.

Click on an option to visit the manufacturer's financial website to apply for the special interest rate you found, if any. Supply your credit information in the spaces provided and submit the application.

Wait for your preapproval. Depending on the bank, your approval may be instant, or you may receive a phone call or email with more information. If you are approved, you certainly qualify for the lowest-advertised manufacturer rate.

Keep your preapproval information with you for shopping. If you did get approved for low-rate financing, you can assume you will also qualify for other special interest rate offers, as well.

Go to the Web pages of local banks or call to ask about interest rates. Once you've found a competitive rate, which you can gauge after viewing various lender offers, call or stop in to apply for preapproval.

Have any new car vehicle information handy to apply for preapproval. You'll need year, make, model and level information. Provide your credit and vehicle information to the bank representative to start your application.

Wait for your approval. The amount of time you'll wait for notification varies by lender, but some may require up to a week to provide your rate and approval.

How to Buy Your First Car Without Borrowing Money

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Borrowing money to pay for your first car increases your debt-to-income ratio and could possibly lower your credit rating. Additionally, indebtedness raises your stress level. To avoid debt hanging over your head, save money for your first car and pay in cash. If you do not pay straight cash for the vehicle, you will have to borrow money in some way.

Instructions

Set a goal for the amount of money you want to spend on a car. To avoid borrowing money for it, you must pay cash. Make a goal so you can visibly see your progress when you save money for your car. For example, if you want to save $5,000, create a poster board that tracks your progress all the way to the total amount.

Save a percentage of your income every month and place it into a savings account. The amount you save depends on your salary and your monetary goal. For example, if you make $2,500 per month, and you want to save $5,000, set aside $250 each month for 20 months. If your savings account is interest bearing, you will make money on the savings you put away.

Shop for used (sometimes called pre-owned) vehicles instead of looking at new cars. New vehicles cost tens of thousands of dollars; if you do not have the cash on hand, you have to borrow the money necessary for the vehicle. To avoid borrowing money with a loan, shop for used cars that cost only a few thousand dollars and fit your car budget. Online auction sites, classified listings and used car lots are all options.

Negotiate with the seller to pay less for your first car. If the car has any mechanical defects or problems with its appearance, ask the seller to reduce the price. It is easier to pay for a car with savings or your cash on hand if the price is lower than what the owner asks. Research the cost of the car using a guide like the Kelley Blue Book. Guide books give multiple prices for a car depending on its condition and mileage. Factor in the cost for taxes and registration in the final price of the car. Typically, taxes and registration cost approximately 5 to 10 percent of the sale price.

Pay for the vehicle with your saved money. Obtain a receipt for your purchase and have the title in hand before driving the vehicle away. You need the title to register the vehicle in your name and prove that the car is yours.

Pennsylvania Mobile Home Repossession Laws

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When consumers borrow money from lenders to finance their vehicles or mobile home purchases, they provide their vehicles or homes as collateral. If a borrower defaults on a loan, the lender has recourse to repossess the vehicle or mobile home. State laws establish the respective rights of borrowers and lenders in the case of default. In the commonwealth of Pennsylvania, creditors can repossess collateral upon default must comply with the commonwealth's consumer protection laws.

Under Pennsylvania law, lenders can repossess mobile homes if they do so peacefully and comply with local ordinances and nuisance laws. They may not use force or threaten violence during the repossession, but they are able to repossess the mobile home on the borrower's private property, in garages or in storage facilities.

Pennsylvania law allows banks to repossess personal property such as vehicles without notice to borrowers. However, written notice is required when repossessing mobile homes.

In Pennsylvania, consumers who borrow money to finance a mobile home have a right to cure after defaulting on their loan obligations. If a consumer defaults, her lender must give her 30 days or more to cure her deficiency. If she pays the outstanding debt, her lender cannot proceed with repossession. A lender can charge a borrower up to $50 for attorney's fees and late fees before releasing its claim against the collateral.

If a borrower does not make his loan fully current, his lender can proceed with repossession and sell the mobile home. If the proceeds of the subsequent sale are less than what is owed, a lender can sue the borrower for the deficiency. But the law also gives the borrower a 15-day right of redemption.

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.

What Is a Charge-Off on a Car Loan?

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When you don't make payments on your car as you agreed to in the financial contract you signed when you bought it, eventually the financial institution, after repeated collection efforts have failed, may charge-off your car loan.

Like the failure to pay any other type debt, the charge-off of a car loan is a black mark on your credit rating.

To say that an automobile loan has been charged off may give you a false feeling that that is the end of collection procedures. Actually this is only the beginning.

If the car has not been repossessed, it most certainly will be after a charge-off. The lending institution will sell it for whatever it can get.

After the lending institution has sold your car, you will be liable for any amount still owed on the vehicle. You may also be liable for any legal fees connected to the repossession, collection and sale of the car.

If you see that you are unable to make your car payments, contact the lender and try to work something out. Often this can be done, as repossession or charge-off usually costs them money.

How to Calculate a Lease Payment for a Car

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To get a fair lease payment on a car, seek the lowest net cap cost and money factor and the highest residual. These car-lease terms help you to see beyond the bottom-line figures on your lease contract. Understand the dealer's secret language and you can spot hidden fees and mistakes that otherwise would be unnoticed. Calculate your payments easily and avoid paying a premium while enjoying the benefits of leasing a car.

Instructions

Obtain the gross cap cost, residual and term, or money factor, information from the dealership where you obtained the lease. The residual is the resale value or residual value at the end of lease. The term is the length in months of your lease. The money factor is a figure that dealers use to calculate finance charges and interest rates on the lease.

Calculate the net cap cost. Add the price you negotiated with the dealer, the dealer fees, taxes that will not be paid in cash upfront and balances of prior loans to get the gross cap cost. From the gross cap cost, subtract the cap cost reductions, which are the trade-in value, the down payment and any rebates, to get the net cap cost. Do not include upfront cash paid to cover lease charges when you signed your lease.

Calculate the depreciation fee. Subtract the residual from the net cap cost and then divide the remainder by the term.

Calculate the total finance fee. Add the net cap cost and the residual. Multiply that sum by the money factor.

Calculate your monthly finance fee. Locate the rent/lease charge on your lease contract; divide that figure by the term to arrive at the monthly fee.

Calculate the lease money factor. Divide the lease/rent charge by the sum of the net cap cost and the residual; multiply that quotient by the term.

Calculate your APR interest rate by multiplying the money factor by 2,400.

Calculate your total monthly payment. Add the depreciation fee and finance fee. Add any sales tax that is applicable in your state.

Repossession Laws in Maine

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Creditors usually differ from debt collectors. When someone borrows money using collateral, the creditor may seize that collateral if the borrower goes into default. Often, creditors hire third party repossession companies to obtain the goods. These repossession companies must follow certain laws. Each state, including Maine, has their own repossession laws.

Any repossession company operating in Maine, repossessing goods bought in Maine, must acquire a license with the Maine Bureau of Consumer Protection. The licenses cost $400 in 2010 and last for two years. All applicants go through criminal record checks as part of the licensing process. Once approved, the company must display the license in a conspicuous place in their office, according to the state of Maine Bureau of Consumer Credit Protection.

In the state of Maine, creditors must issue a notice of right to cure default letter giving the borrower 14 days to pay all back payments. This occurs only after the borrower misses a regular payment. The creditor only has to prove they sent the letter. The letter doesn't physically have to make it to the borrower if an address changed or if the borrower doesn't accept registered mail.

Repossession companies must maintain the peace when seizing property. This means they cannot repossess if they must enter the home to do so. Also, if the property owner tells the repossession team to leave, they must leave, says the state of Maine Bureau of Consumer Credit Protection.

After the repossession of goods, the creditor must send the borrower the date, place and time of the public or private sale for the collateral, according to the Bureau of Consumer Credit Protection. If the borrower wants the goods back, they must pay the full balance of the loan and creditor expenses for repossession.

If the goods sell at a public or private sale, the state of Maine Bureau of Consumer Credit Protection says the proceeds must first pay the cost of repossession and sale preparation. Any remaining money goes toward paying down the debt. The borrower must pay the remainder left on the debt after sale proceeds. If the sale leaves an excess of money, the extra money goes to the original borrower.

How to Return a Leased Vehicle Early

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Car leases are good options for people who need low monthly payments on a car. A lease is basically a short-term contract requiring you to make payments for a certain number of years. At the end of the time period, you return the car to the dealership. If you decide to turn the car in early, this is called breaking your lease. While it is possible to do so, be aware that penalty fees typically apply.

Instructions

Wash the entire vehicle as well as vacuum the interior and wipe down the insides. You want the car to be in perfect condition when you return it so that you will not receive damage fees on top of any other early termination fees.

Take pictures of the interior and the exterior of the car from every single angle. Store these in a safe location for future reference. These pictures provide proof that you returned the vehicle in good condition in case the dealership claims that you did not.

Read your lease agreement carefully to determine which early termination fees you are required to pay. There will always be a lump-sum termination fee, but some contracts also require you to pay for the remaining number of months on the lease.

Transfer the amount of required money into your bank account so that you can pay it as soon as you turn the car in.

Call the dealership and explain that you want to return the leased car early. Make an appointment with the leasing manager to turn the car in.

Take the leased car, along with all keys and key fobs, to the dealership at the designated time. Pay all outstanding fees and get a signed copy of the receipt stating that you are no longer responsible for the vehicle.

Can My Finance Company Add Insurance to My Vehicle?

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Your auto finance company can add insurance to your vehicle; read your contract over for details. As part of your lending agreement, you must keep a full-coverage policy on your vehicle until you satisfy your loan. If you don't, the lender can add its own policy or even repossess your car.

Your bank likely tried to contact you before adding the extra insurance to your vehicle. When you first took out your car loan, proof of full-coverage insurance was required, so most likely, you changed insurance companies or let your policy lapse. It is your insurance company's responsibility to notify your state's motor vehicle office and your lender of any policy changes. Once your lender finds out you don't have coverage, it will try to contact you by phone and mail before adding the extra coverage to your vehicle.

If you failed to prove insurance to your lender and it had to apply extra coverage, you most likely noticed this because of an increase in your car payment. Bank-purchased insurance policies are more expensive than policies you can purchase privately, so your payment may increase substantially. Try to correct the issue as soon as possible, but if your car payment is due, pay it. If you do not pay your car payment, the bank will likely report a late payment to the credit bureaus.

Obtain proof of insurance as soon as possible and forward the proof to your lender. If your insurance company failed to notify your lender of consistent coverage, provide proof of insurance that shows the effective policy dates. If your insurance lapsed, purchase a new policy as soon as possible. Stop into the bank with your proof of insurance if it is local; otherwise, call your lender for immediate response. Find out if you can fax or email proof of insurance to have the matter handled promptly.

If you find that your insurance company did not not properly notify your lender of consistent coverage, contact your bank in the future whenever there are policy changes and renewals to ensure these are reported. If you change insurance providers, contact your bank immediately; you can likely fax or drop off your proof of new insurance to avoid a hassle in the future. If your lender tries to contact you, return its phone calls immediately.

Does More Money go to Principal Instead of Interest, if You Pay Your Car Loan Early?

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When a consumer finances a vehicle, he wants to pay it off as soon as possible and to avoid paying a large amount in finance charges. Unless he receives a zero percent financing, a finance charge on his car loan will depend on the interest rate and the way the financial institution calculates the interest.

When a consumer applies for a loan, a lender reviews his application and a credit report to evaluate his creditworthiness. Based on this information, the lender determines how much a consumer can borrow and the interest rate for which he qualifies. The financed amount may include the cost of the vehicle, taxes, fees and other charges, such as credit insurance and extended warranty. A consumer may need to pay part of the fees out of pocket. Based on a borrower's creditworthiness, a lender may request a down payment or a co-signer.

A finance charge is a cost of a having a car loan. A financial institution calculates a finance charge based on the interest rate, also referred to as annual percentage rate or APR, and the length of the loan. The longer the term of a car loan, the more a consumer will pay in finance charges. The higher is the loan amount, the higher is the total amount of finance charge. Finance charges may include other fees, such as late payment fees, returned check fees and pre-payment penalties, when applicable. A consumer must receive a copy of the loan contract which describes how finance charges are calculated.

Most financial institutions use a simple daily interest, also known as simple interest, method to calculate finance charges on a loan. A lender can provide an amortization schedule that lists how a bank will apply loan payments each month with respect to principal and interest. Loan statements also list the breakdown of loan payments each month. If your lender uses simple daily interest method, your interest calculation depends on the balance of your loan. If you pay extra, your loan balance will decrease and your interest charges will be less each month. The creditor will apply more of your payment towards the principal.

Some banks front-load loans by calculating the total finance charge for the whole term of the loan and adding it up front. As a result, a consumer pays mostly interest for the first two years of the loan. If your bank uses this method, you will pay the same amount in interest. It even becomes a disadvantage for you as you will pay the same finance charge whether you pay the loan off in three years or five. A bank may charge a prepayment penalty if you pay off a loan early.

Definition of a Chattel Mortgage

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While a chattel mortgage may sound like a term used for mortgaging a house, it is car financing available in Australia. It is a source of financing for the purchase of a vehicle when a car buyer does not have enough or doesn't want to buy the car with cash in a lump sum.

When a car buyer in Australia wishes to mortgage the purchase of a car, the mortgage lender provides the funds for the purchase of the vehicle. In return, a mortgage or lien is placed on the vehicle by the lender while the buyer takes possession of the vehicle. The vehicle is used as collateral for the chattel mortgage, so if the buyer defaults on its payments to the lender, the lender has the right to repossess the vehicle. Once the buyer pays off the chattel mortgage, the lien or mortgage is removed from the vehicle and the lender no longer has rights to the vehicle.

Typically, a chattel mortgage has a term of 12 to 60 months and has a balloon payment. A balloon mortgage is one where the borrower pays a monthly payment for a certain period of time (12 to 60 months). At the end of the term, the mortgage balance comes due or balloons. At this time, the vehicle owner is required to pay the total balance due, refinance the balance into a new chattel mortgage or return the vehicle to the dealer where it was purchased.

Generally, buyers who use the vehicle primarily for business purposes use chattel mortgages. Primarily for business use is defined as using the vehicle for 50% or more of the time to perform business functions. Chattel mortgage financing is also beneficial to vehicle buyers who are interested in owning the vehicle at the end of the term rather than turning it back into the dealer for a new vehicle.

There are several advantages associated with using a chattel mortgage to finance the purchase of a vehicle. When the vehicle is used for business purposes, the payments are tax deductible. The interest rate and monthly payments are fixed for the 12- to 60- month term, so vehicle buyers know what their payments will be. Because chattel mortgages are a form of leasing the vehicle, the interest rates are generally lower than other financing options. Finally, the built-in balloon payment lowers the monthly payment of the vehicle.

There are also tax considerations to take into account when using a chattel mortgage to purchase a vehicle. The monthly vehicle payments or balloon amount due at the end of the term is not subject to GST. When the vehicle is used for business, the owner of the vehicle can also claim interest and depreciation costs on their taxes up to a maximum of $57,180.

How to Negotiate a Lease Price

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Lease advertisements offer attractive payments, considering that you can drive a new car for up to half of what it costs to finance one. For a dealership, a lease is as profitable as a finance -- the leasing bank pays the dealer for the car in full while you make payments to the bank. While some people do not question lease payments or pricing, you should negotiate as you would for a financed vehicle.

Instructions

Go to the manufacturer's website to review current lease terms and payments. Note that you'll have to put a certain amount of money down, which does not include taxes or fees, to reach the intended lease payment.

Go to the Edmunds website to view vehicle invoice pricing. Invoice pricing is the dealer's cost for the car. Use the True Market Value, or TMV, tool and enter the model and options information for the car you want to lease. The MSRP, or manufacturer's suggested retail price, should match the one you saw in the lease advertisement.

Figure a reasonable discount for yourself. If you were going to buy the car, it is unlikely that you would pay thousands over invoice cost. Take the same approach with leasing. Figure any amount $700 to $1,200 over invoice as a fair amount to pay, as the dealer is entitled to some form of profit.

Print out the Edmunds' TMV results. Take the printout to the dealership to negotiate. You do not have to produce the information, but you can use it for backup if the dealership won't meet your payment offer.

Negotiate the price. For every $1,000 that you lease, you pay about $30 per month. If your invoice price research takes $2,000 off the MSRP, you should negotiate either a $60 per month payment reduction or less money down -- $2,000 in this scenario -- to keep the same payment.

Complete the lease agreement if the dealer accepts your payment offer. If not, email or call other same-make dealers in your area and make an offer. Because you made a fair offer after researching the prices, you should not settle for less. Be prepared to walk if a dealer won't accept your fair-price offer.

Advantages & Disadvantages of Buying a New Car

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Keep your overall budget in mind if you're debating the advantages and disadvantages of buying a new car. Look beyond the sticker price when weighing a new car's cost--consider items such as insurance costs, which are higher for a new car. A used car will come with a cheaper price tag, but it can cost you in other ways--for example, if it's a gas-guzzler or if it frequently breaks down.

One big disadvantage of buying a new car is that it starts depreciating (losing value) as soon as you buy it--Car & Driver notes that a car can depreciate as much as 40 percent in its first year. There's not much you can do about that, but you can control some costs associated with buying a new car. Research pricing to make sure you're getting the best deal and check with organizations such as the Better Business Bureau to be potential dealers are reputable. Contact your auto insurer before you purchase a vehicle to find out if the model you want to buy will significantly increase your insurance rate. Consider buying another model that can be insured for less if it does. Avoid paying for unnecessary add-ons at the dealership. For example, sealants applied to paint and fabric to protect a car's exterior and upholstery can add several hundred dollars to the cost of a vehicle. You can purchase fabric sealers and waxes at discount and auto-supply stores and apply them yourself for much less.

New cars are covered by manufacturers' warranties, so buyers generally don't have to pay for major repairs for the first two to three years after they buy a new vehicle. However, it may be cheaper to repair an old car than buy a new one, even if the old one needs frequent repairs. Still, a new car's reliability can be worth its cost, especially for people who need reliable transportation to run their businesses or hold down jobs where their presence is essential.

More fuel-efficient vehicles have entered the market in recent years, so you can spend less on gasoline if you buy a new car instead of driving an old one. According to the U.S. Department of Energy, a vehicle that can gets 30 miles per gallon (MPG) of gas will cost $718 less in fuel annually than one that gets 20 MPG. That calculation is based on driving 15,000 miles per year and paying $2.87 per gallon of gas; if prices go higher, the savings will increase.

Automakers continue to improve the safety of new vehicles. Some improvements are voluntary while others are due to more stringent government safety standards. For instance, consumers can benefit from competition among automakers who are adding side airbags, blind-spot monitoring systems and other safety devices to vehicles to attract buyers. Side airbags offer better protection in a collision, and blind-spot monitoring systems alert drivers to other vehicles located at the side or rear of their car. Older cars will likely include fewer safety devices than new cars.

How to Handle the End of an Auto Lease

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Leasing a car suits drivers who don't want to commit to driving the same car for five or more years. They can lease the car and then have the option of selecting a different car every couple of years. Leasing is similar to renting a car. You don't own the car, and leasing involves returning the car. If nearing the end of your auto lease, consider several options available to you.

Instructions

Complete any maintenance on the car. While you don't own the car, you're responsible for the car's maintenance. Return the leased car in good condition. Prepare for the vehicle's lease inspection by performing any needed repairs or maintenance such as new brakes, fixing scratches/dents and receiving oil changes.

Check the car's mileage. Drivers who lease cars are allotted a certain number of miles, and exceeding this mileage can result in an out-of-pocket fee. Review your contract to recall your mileage allowance and how much you owe (per mile) for exceeding this number. Prepare to pay this fee when returning the car.

Buy the car. Leasing a car gives the option to purchase the vehicle at the end of the lease term for a predetermined buyout price. Secure financing with the dealership's finance team or your personal bank if you decide to keep the car.

Continue to lease the same vehicle. Talk to your auto dealership about keeping the car and extending the vehicle lease for a certain number of months for the same monthly note.

Pick a different car to lease. If you're ready for a new vehicle, browse the dealership's selection and sign a new lease agreement for a new automobile.

Return the car and walk away. You don't have to buy or lease another car once your lease period ends. Simply bring the car back to the dealership, pay any mileage fees and walk away from the car.

If I Bought a Car With a Cosigner Who Owns It?

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A change of terminology when signing a car loan with another person can mean the difference between the ability to repossess it or having no recourse if the other party skips town. Cosigning is one way to help another person get a car, but also the most risky. Instead, the co-signer would fare better signing on as a joint applicant.

If you cosign on an auto loan, only the primary borrower retains ownership of the car. As a cosigner, you only promise to repay the lender if the original applicant cannot meet his debt obligation. Even if the original borrower blatantly refuses to repay the loan and you have to take over payments, only the original owner has the title to the car and you cannot repossess it nor receive insurance payments in case the owner totals the car in an accident.

Although the terms "cosigner" and "joint applicant" may sound similar, they have very different legal consequences. If you want to help someone obtain a car loan, but take the vehicle back if he defaults on payments, you want to become a joint applicant. A joint applicant has the duty to repay the entire loan but also has his name on the deed to the car, according to GoBankingRates.com

In general, becoming a cosigner or a joint applicant is a poor decision unless you absolutely trust the primary borrower to repay the loan, according to the Federal Trade Commission. Lenders pursue cosigners most of the time when the original borrower defaults. If you, as the cosigner, cannot pay, the lender can sue you for a judgment, which may result in a lien on your assets or garnishment of your wages and bank accounts. Also, missed payments go on your credit history, which will quickly destroy your credit rating.

Whether you should cosign the loan or become a joint applicant depends on your prerogative. If you only want to help the individual obtain a loan, cosigning is the best way to go. If you want the option to repossess the car, become a joint applicant. Should you become a cosigner, demand the lender put in writing that it will notify you of missed payments on the loan and only agree to cosign the original balance on the loan, not late fees and penalties. After a few years of good payments, ask the original borrower to refinance the car loan to remove your name; he probably will have good enough credit to get a loan on his own at this time.

How to Avoid Car Loans

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Many people consider car loans a necessary part of life, but a car loan is not a necessity. If you have struggled with high car payments or you want to begin saving more money for retirement, you can find that money by avoiding car loans. With careful planning and execution you can break the car loan cycle and never have to borrow to pay for a car loan again. The money you will save on interest is worth it, but it also frees up extra money in your budget to do other things you want to do.

Instructions

Set aside money each month to pay for a new car. While you are paying off your current car loan set aside an amount close to it to pay for a new car when it is time to buy one. The amount can be reduced if you plan to own your current car longer than the length of the loan.

Purchase used cars instead of new cars. Cars take a big depreciation in value over the first three years. A three-year-old car is still reliable and may come with a warranty, and it's considerably less money than a new car. It also makes it easier to save up enough to pay for the car in cash.

Pay for car repairs until you have enough saved up for a new car. Although it may seem silly to keep paying for repairs on a car, you can save money on interest by repairing your car and paying cash for a new car.

Keep your cars longer than you had previously. Many people will drive cars for up to 10 years with no major problems. Keeping your car longer allows you more time to save for a new car, while still providing reliable transportation. Do not be as concerned about style and brand, but more about reliability and safety of your car.

Maintain your current car so it will last longer. Regular maintenance and tune-ups will help your current car last longer, giving you more time to save up money for a new car. Records of tire rotations, oil changes and other standard maintenance allows you to ask more for your car when it is time to sell it.

Can Finance Companies Refuse to Refinance Your Vehicle?

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If you refinance your vehicle you replace your existing loan with an entirely new loan. Consequently, lenders underwrite vehicle refinance loans using the same methods that are used during the underwriting of purchase loans. While a lender cannot discriminate against you, a lender can refuse to finance or refinance a vehicle loan for a number of different reasons.

Vehicles do not last forever. In most instances the value of a vehicle steadily decreases over time as the vehicle approaches the end of its useful life. To keep your loan payments affordable, your lender may have to stretch out your loan term over a period of five or more years. The vehicle's value may drop at a faster rate than your loan payments pay down the principal. When this happens you have negative equity because the loan balance exceeds the vehicle's value. Generally, you cannot take out a loan if the loan-to-value ratio exceeds 100 percent because a lender cannot fully secure its interest in the vehicle if the debt exceeds the market value of the vehicle being financed.

A lender can refuse to refinance your vehicle loan if you have a high debt-to-income ratio, or DTI. You calculate your DTI by dividing your recurring debt payments into your pre-tax monthly income. Loan underwriters can only approve your refinance loan if your DTI remains below a certain level. While DTI limits vary from lender to lender, lenders usually assume that at least half of your income goes toward tax, insurance, retirement savings, utilities and day-to-day expenses. So if you have a DTI level of 50 percent or higher then your lender will probably decline the loan.

A lender cannot accurately predict your future actions simply by checking your credit report but lenders do make assessments about your future borrowing habits by checking your credit history. Lenders regard people with low credit scores as high-risk borrowers because history shows that these borrowers previously defaulted on their debt obligations. In most instances you have to have a credit score of 620 or higher to qualify for a loan. But each lender sets its own standards and some lenders require credit scores that exceed 700.

A lender can turn down your loan application if the vehicle that you intend to finance does not meet the criteria listed in the lender's underwriting guidelines. Most lenders place age caps on vehicles, meaning that you cannot finance a vehicle of a certain age. Other lenders do not offering financing for luxury or limited edition vehicles. Such vehicles do not tend to lose value quickly, but few people can afford these vehicles so if you default on the debt the lender may struggle to find a buyer.

Ways to Get Out of a Car Lease

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You can get out of a car lease, despite having signed a contract for a set term. Although you can pay to terminate your contract, you have other options available to you that may cost you little or no money at all. Explore your lease-end options to determine which works best for you.

You can transfer your lease to another person at anytime during your contract, as long as your bank allows. Most leasing banks require an up-to-date account and require that the lease be at least several months old. Some banks may charge a lease transfer fee. A market exists for buyers who want to take over other people's leases, often because of shorter-term options and lack of down payment requirements. Review the Swapalease web site and LeaseTrader.com to determine if the option is worthwhile. Call your leasing bank before advertising a lease assumption so you can budget for fees if any apply.

Consider selling your lease. Even though you don't own the vehicle (the leasing bank does), you can sell it for an amount usually equal to remaining payments due and buyout amount, which is stated in your contract. Call your leasing bank to find out the cost of your current lease buyout and list your vehicle for sale. Check the vehicle's value at Edmunds.com or the Kelley Blue Book web site. You must come up with additional money if the sales price doesn't warrant enough to pay off the lease buyout amount.

Trading your vehicle is similar to selling your car. A dealership can assist you with ending your lease early by finding a lender that will allow you to transfer negative equity to a new loan. You can also offer a down payment to decrease your negative equity amount. Call a same-make dealer to find out if your current leasing bank offers any special lease-end opportunities. Some banks may allow you to end your lease up to one-year early without penalty, usually in the event that you lease or purchase another vehicle from the same bank.

You can pay to terminate your lease. This option proves more expensive the closer you are to lease inception. Read over your contract or call your leasing bank to determine your lease-end fees and termination cost. You are likely required to pay any remaining payments due and a bank-determined termination fee. You can also end the lease and transfer the termination balance to a new loan or lease if using a dealer for a new purchase. If the vehicle you want to purchase has rebates available, you can use the discount to limit your down payment amount, if any down payment is required at all.

What to do if You Are Upside Down in Car Payments?

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Being upside down in a car loan means you own more than your vehicle's worth for your car loan. This is not unusual for newly purchased vehicles; it can take several years to even out value and loan amount if you didn't offer a down payment or take advantage of rebates.

Since several avenues exist for ending your car loan, you must determine your vehicle's value. Use the Kelley Blue Book website, Edmunds.com and the NADA Guides website to determine the vehicle's value; use a median value from all websites for a reasonable expectation. Check private sale and trade values; the two options for ending your loan. If your trade value is only $1,000 off, it may benefit you to trade the vehicle if you want a new car. If you find you're thousands off, a private sale may prove the better option.

You must pay off your car loan to get out of your vehicle. Whether you sell your car or trade it in to a dealer toward another purchase, you must obtain a lien release to officially transfer your car's title. If you find your value is too far off from your loan amount to sell your car, you may want to make a plan to increase your car payments and establish equity. Some of your car payment goes toward your interest payment, unless you financed a zero-percent loan. Try to make extra payments toward your loan's principal to pay down your car loan. Talk to your lender to discuss its early payoff process.

If you decide to sell your vehicle privately, you'll have to come up with the loan's balance after the sales price to fully pay off the loan. If trading your car to a dealer, it can help you pay off the loan with minimal down payment requirements. You can transfer your negative balance to another loan or shop for a new car with sufficient rebates to help decrease your down payment needs. Most states offer a tax discount when a buyer trades a car toward another purchase; so you may save thousands in tax charges depending on its value and your area's tax rate.

Avoid becoming upside down in a car loan in the future. Shop for a low interest rate; keep in mind that your rate can cost you thousands over the term of your loan, making it harder to trade out of the car because of interest charges. Do not finance extra purchases; items like taxes, fees and aftermarket purchases, such as an extended warranty, often result in an upside down car loan. Shop for a new car with rebates if possible and avoid rolling money over to a loan.

Company Car Vs. Cash Allowance

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If your company requires you to travel in the course of business, it should cover expenses associated with that travel. Some firms offer employees the option of taking a company car on business trips or using their own vehicle and receiving a cash allowance for travel expenses. If you're offered this choice, you'll want to explore the advantages and drawbacks of both options.

If you choose to take a company car when traveling for business, you don't need to worry about putting wear and tear on your own vehicle. In many cases, the company provides you with a vehicle in good condition that you can use to attend client meetings, visit other locations and run general business-related errands. In some cases, the company may even allow you access to the car for mild personal use, depending on the agreement.

One disadvantage of taking the company car is that you'll need to pay for gas, oil changes and other basic maintenance out of your own pocket and seek reimbursement later. It can take an entire pay period or longer to receive your money. Also, if you're involved in an accident while using the car or receive a number of tickets, this places a financial burden on your company and could result in the loss of your job.

With the cash allowance option, the company provides a stipend each week or month based on estimated mileage to cover the cost of using your own car in the course of business. One advantage of this arrangement is you don't need to worry about the responsibility of driving the company's vehicle. You also don't need to file expense reports and collect receipts for travel reimbursement. In many cases, the cash allowance counts as an added benefit on top of your salary.

One potential disadvantage of the cash allowance is that it may not cover all your travel expenses. You may feel pressure to control costs and modify your travel plans to stay under budget. Another drawback when using your own car is that you subject it to excess wear and tear. Since you use the car more than you would for personal reasons, your mileage rises significantly each year. You may need to modify your auto insurance policy to account for the additional use. Also, it can prove challenging to keep track of all the costs involved when using your own vehicle for business purposes.

How Long Do I Need Full Insurance Coverage on a Financed Vehicle?

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If you look at your vehicle's loan contract, you'll see a full coverage insurance policy is required until your loan is paid off. The policy must remain in effect because it protects the bank from losing the car it partially owns. It's important to understand how long you need full insurance coverage on a financed vehicle, the benefits of having that coverage in place and about the financial repercussions of not keeping the policy enforced.

A full coverage insurance policy protects your vehicle in the event of an accident, regardless of who was at fault. A state-minimum liability policy covers damages to other people or property. While a full coverage policy is the most expensive, it provides protection to the bank that has financial interest in the car and to you as well. Should you crash your car, the bank knows it will receive its loan payoff or be repaired to return to the road for you to continue driving it, a benefit to both you and the bank.

Your insurance company reports your coverage information to your lien holder, so if you drop the coverage or let it lapse; you're likely to face financial consequence from your lender. Many banks add a full coverage policy to the vehicle if its borrower fails to do so. However, this is not an easy way out; the policy put in force by the bank is usually triple the cost (or more) than a personally purchased policy. Your next car payment will rise to reflect the policy cost.

If you want cheaper insurance, shop around. With the number of insurance providers available nationwide, you may find you can lower your insurance cost substantially. You can also make changes to your existing policy, such as raising your deductible, lowering bodily injury and property damage limits (if higher than state or bank minimums) or dropping extra coverage, such as rental car coverage or windshield replacement. Talk to your bank to make sure you don't decrease coverage beneath the bank's required amount. Your insurance provider can help you decide which policy extras you can drop.

If you do increase your deductible or lower limits, you put yourself in financial risk should a serious accident occur. If your policy does not cover the damages to another person or even property, you are liable for any payments due. You can be sued in court. Additionally, losing rental car or windshield coverage can leave you having to pay in the event of an accident. Accidents are never planned; keeping an adequate policy in place benefits you financially.

Cosigner Rights for Car Loans

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Lenders may require cosigners for primary borrowers who have minimal credit history, or if the borrower has negative credit history. A cosigner on a loan to buy a car is assuming a financial risk that the lender is not willing to take for the primary borrower. Cosigners, however, do have rights that come with their financial committments.

A cosigner is agreeing to certain financial responsibilities regarding the loan. If the borrower defaults, the cosigner must pay the debt. In fact, lenders may request payment from the cosigner at any time, even if the primary borrower hasn't technically defaulted, says the website Lawyers.com. For example, if the primary borrower misses a payment, the lender can go directly to the cosigner for the money without even attempting to collect from the primary borrower first.

Depending on the loan agreement, cosigners often have partial ownership of the vehicle. If the registration or title list the cosigner and the primary borrower with "an" or "or" separating their names, the cosigner has partial ownership of the vehicle, according to Bankrate. If you need access to the title or registration, contact the lender.

Before cosigning for a car loan, cosigners have the right to draw up a contract designating the primary borrower's obligations of repayment to the cosigner if the primary defaults on the loan. If the cosigner ends up having to pay a portion of the car loan, they have the right to draw up a promissory note with a scheduled repayment plan for borrower.

Cosigners can negotiate the terms of the loan. They have the right to request limited liability in relation to late charges and attorney fees. For example, the cosigner can ask the lender to draw up papers stating responsibility for the principal loan amount only. Also, upon request, the lender should alert the cosigner in writing of any missed payments from the primary borrower.

Before cosigning for a car loan, a cosigner should take a couple of things into consideration. The possibility of payment responsibility is very real for a cosigner. Make sure you can afford the car payment if the primary borrower cannot. Also, cosigned loans appear on credit reports as financial obligations, so this could affect the cosigner's ability to obtain a loan for himself, says the website Consumer Bad Credit Guide.

What to Watch for When Buying a New Car

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Buying a new car can be an exciting experience. However, it is important to be an informed consumer and go into the process with proper research, thought into the type of vehicle you want and a set budget which you will not exceed. These components ensure a successful purchasing experience and a car that fits your budget and lifestyle. To make sure this happens, watch out for several key issues when you buy a new vehicle.

Salesmen work on commission, so their bottom line is likely to be more important than helping you find a car that fits your budget. So, in that vein, be prepared for a certain amount of pressure to buy. However, salesmen who engage in high pressure tactics that are unethical, such as lies, veiled threats or uncomfortable innuendos are not part of the process. If you encounter such tactics, find another lot from which to purchase your vehicle.

According to the Carbuyingtips.com website, one of the most common scams that befall new car buyers is the financing scam, in which the dealer asks you for more money after you've already driven the car home. Generally, he may call and say the original financing fell through and now you need to sign new loan papers and put additional money on a down payment. To avoid falling victim to this, keep a copy of any papers you sign from the dealership and make sure you get the contact name and number for your car loan representative before you leave the lot. Once you sign on the dotted line, the deal is legal and binding, so you aren't required to pay more money.

Insurance is yet another financial component of buying a car, and while you may be excited about getting the car you've always dreamed of, you may not be as excited about the insurance premium. According to the Beatthatquote.com website, new cars with powerful engines are more expensive to insure, as are cars without key safety features, such as anti-lock brakes, theft prevention systems and air bags.

New cars depreciate quickly, losing as much as 40 percent of their value in the first three years that you own them, according to Beatthatquote.com. So, unless you just really feel like you need a brand new motor, you might opt for a slightly used model. This might save you thousands on the sticker price for a vehicle that is as good as new.

The Effects of High Interest Rates on Consumer Demand in the Automotive Industry

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Higher interest rates affect consumer spending decisions, especially for big ticket items such as automobiles. When interest rates are high, it indicates an overall high level of consumer demand for goods and services. In the auto industry, it denotes that consumer demand for cars is relatively high. When the supply of vehicles produced does not meet consumer demand, it drives car prices higher. The problem is that increased demand and high interest rates indicates the economy is growing too quickly. This can lead to quick and dramatic economic downturns.

To prevent an economic downturn, the Federal Open Market Committee (FOMC), a branch of the U.S. Federal Reserve, adjusts interest rates higher to discourage borrowing. Higher interest rates mean that it costs more for consumers to borrow money for auto loans. The goal of adjusting interest rates higher is to decrease demand to achieve price stabilization for vehicles. As interest rates increase, demand for cars decreases. This decrease in demand then relieves some of the upward price pressure on cars.

High interest rates depreciate the value of a dollar, giving consumers less purchasing power. This means consumers have to pay more for a car when interest rates are higher than they would have to pay for the same car when interest rates are low. This decrease in purchasing power often leads to a decrease in consumer demand in the auto industry. This decrease in demand can lead to auto manufacturer's cutting production to reduce the supply of cars in the economy.

The FOMC will often continue to raise interest rates until the committee believes the economy has reached a point of market equilibrium. In the auto industry, market equilibrium means the interest rate adjustments the FOMC makes achieves the goals of price stabilization and a balance between supply and demand for cars. When the FOMC feels as though it is moving toward reaching these goals, it will stop raising interest rates higher. If consumer demand for cars decreases too much, the FOMC may consider lowering interest rates to increase demand.

How to Understand Car Interest Rates

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In many places around the country, a car is a necessity. But even a no-frills new car costs thousands of dollars, making a car purchase without financing generally impossible. Even the cost of a used car is often more than you can afford out-of-pocket, so chances are that your next car purchase will require some type of financing. When financing a new or used car, it is important to understand interest rates charged by banks, car dealers and other financing agencies.

Instructions

Review any financing offers that apply to the cars you are considering. Car manufacturers often give customers a choice between a low-financing rate and a cash rebate. Calculate the amount of interest you could save by going with the lower-financing rate, then compare it to the amount of the cash rebate. For instance, if the going rate for car loans is 6 percent, a zero percent financing offer on a $30,000 car would save you roughly $1,800 over the life of the loan. If the rebate is more than that amount, it would be better to take the rebate and use it to pay the interest on the loan.

Pick up and review a rate sheet the next time you go into the bank. Rate sheets typically list the interest rates on various loans, including loans for new and used vehicles. Use your calculator or a spreadsheet to determine your monthly payment and the amount of total interest you will be paying. There are a number of car payment calculators on the Internet to make the process easier.

Note the variance in interest rates between new cars and used cars. Banks typically charge at least 1 percent to 2 percent more in interest on used cars than on new ones. While this difference may not be the determining factor in your purchase decision, it is something to keep in mind.

Check the interest rates on car loans at several financial institutions, including banks and credit unions. Credit unions often provide better rates on loans, since they are owned by their members and not shareholders.

Check government resources like the Federal Trade Commission's website for tips and warnings about car loans and car interest rates. It is important to be on the lookout for scams and pitfalls when shopping for a car loan.

Read the fine print of the car loan application carefully. Some car loans require consumers to come up with a large down payment in order to get the low interest rate. Others restrict those super-low interest rates to those with stellar credit scores, according to the New York City Department of Consumer Affairs Office of Financial Empowerment.

Ask the dealer if the special car loan rate is available on all models, or if it is restricted to one or two vehicles. Sometimes a car dealer will advertise a low interest rate to help clear inventory of overstocked vehicles.

Watch out for balloon payments on car loans. Some car loans have low monthly payments, but require a large payment at the end of the loan. In some cases this balloon payment can be thousands of dollars.

Is It Cheaper to Lease or Buy a Vehicle?

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At first glance, it may appear that leasing a vehicle is cheaper than financing it. While leasing payments may be cheaper initially, you might spend more than the finance amount if you purchase the vehicle after the lease or if you supply a large down payment. Before you pursue either option, consider overall and long-term costs.

If you compare a finance payment to a lease payment, the lease payment is likely cheaper, sometimes by more than $100. This can help you to budget a new car payment that you couldn't have afforded otherwise. Also, you can drive a new car with more options. For example, a comparable finance may afford you a vehicle with front-wheel drive when you need an all-wheel drive because of payment differences. You are less likely to settle if pursuing a lease.

The money required for a lease down payment can prove disadvantageous. Most leases are advertised with low payments but require thousands down. To gauge the difference in payment, compare a finance and lease payment using a similar down payment. Or, if you don't plan to supply a down payment, your monthly lease payment can increase significantly. It is not advisable to provide a large down payment toward a lease. If your vehicle becomes a total loss, your insurance company pays the vehicle's value to the leasing bank, not you. You cannot get back your down payment.

Because most leasing programs offer a 36-month term with low annual mileage, you will likely drive the vehicle during its factory bumper-to-bumper warranty period. A bumper-to-bumper warranty covers just about anything in your car aside from maintenance or body work repairs. If you plan to purchase a vehicle, an optional extended warranty can cost thousands of dollars. Consider the cost of the warranty with your purchase price to further compare overall cost.

If you plan to purchase your leased vehicle, you will likely pay more for it in the long run. Leased vehicles are purchased from the dealership by your leasing bank. You then pay the bank for the vehicle's depreciation. If you failed to negotiate pricing, you likely paid MSRP (manufacturer's suggested retail price) for the car. If you purchased the vehicle instead of leasing it, you likely could have taken advantage of manufacturer rebates, or instant money off of the price of the car. Before you pursue a purchase or lease, check with a dealership for offers. Some manufacturers offer thousands off new car pricing as an incentive to buy.

How to Buy a Car After You Go Bankrupt

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Going bankrupt influences financing options; if trying to buy a car after filing for bankruptcy, you'll need to take specific steps and apply with certain auto lenders. Acquiring financing after bankruptcy can actually help rebuild your credit score. Auto lenders report payments made on the car loan, and paying on time each month can add points to your overall rating.

Instructions

Save for a down payment to lower the monthly payment. High interest rates are standard with car loans after a bankruptcy. Because higher rates increase the payment, aim for a 20 percent down payment to help keep your auto loan payment affordable.

Go to a subprime lender to acquire financing. Bad credit or subprime lenders are accustomed to working with people who have a past bankruptcy, repossession, foreclosure or other credit issue. Use these lenders to get a car loan with easy financing.

Show pay stubs to prove that you can afford the vehicle. Enter the dealership or lender's office with copies of income statements to qualify for the vehicle loan.

Ask about a cosigner for the loan. Buying a car after going bankrupt is easier if you have another person on the auto loan agreement with you. An appropriate cosigner is someone with a high credit rating (700 range or higher).

Wait until you're ready. If you don't have a cosigner or down payment to help you buy a car after going bankrupt, defer the purchase until you've improved your score. In the meantime, pay your outstanding balances on time and resolve to eliminate balances.

Can a Dealer Take Your Vehicle Back If He Can't Finance It?

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If the dealership can not obtain financing for you but let you take the car anyway, you do have to return it. It is not paid for. However, you should receive your deposit back. You may have other options for financing outside of the dealership though.

The dealer had hoped to obtain financing for you, and thought he could based on your credit information. While you probably signed contracts and motor vehicle paperwork, none of it is valid until submitted. Dealers have contracts on hand for each bank they work with, but the loan is not complete until the dealer officially submits the contract and receives payment for the car. Motor vehicle paperwork must also be submitted to a state motor vehicle office.

Find out why you were not able to obtain an approval. Your dealer obviously thought your application was loan worthy, so you may still have a chance. You may need to put more money down, which is a bank lending requirement, but not necessarily the dealer's in this situation. You may need to take a higher payment because the bank would prefer a shorter loan term because of credit and equity issues. A cosigner is always an option; find someone to sign for the loan with you who has good credit and a stable income.

New car dealers use a variety of banks, from local credit unions to national based lenders. If you tried to obtain financing through a smaller dealer, he may only use one or two banks. Find out how many banks the dealer submitted your application to and if any others are a possibility. If not, apply yourself at a local bank or through a subprime lender if you have have poor credit. A subprime lender (such as Capital One or Road Loans) may approve you at a higher rate, which may be your only option.

Unfortunately, you'll have to return the vehicle if all borrowing attempts fail. Before returning the car, ask if your deposit will be ready for pick up at the same time to avoid any dealer hassles. Many dealerships return deposits with a check, and cannot do so until your check clears, which takes about 10 business days. If this is the case, ask to be called so you can pick the check up rather than take the chance of it being lost in the mail.

What If a Bank Can't Find a Lien on Car?

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You may think you've hit pay dirt if your bank can't find your car lien, but don't celebrate your "free" car just yet. Even if the bank can't find your lien, you are still on the hook for paying for the car. In fact, if you're filing for bankruptcy, the lack of a lien can actually work against you. If you plan to sell your car or are facing bankruptcy, you will need to track down your lien, even if the bank can't find it.

A bank's lien on a car is a claim of ownership. The lien says that the bank loaned you money for the car, and until that money is repaid, it is first in line take the car or take any proceeds you make from selling the car. With a lien, the bank can repossess your car if you fail to make loan payments and it is entitled to any money earned selling the car, up to your outstanding loan balance.

When a bank issues a loan, it "perfects" the car lien. Perfecting the lien means the bank issues the lien and registers the lien on the car title -- in other words, it lets the state know that it holds a lien on the car. When the bank fails to complete these steps, the lien is said to be unperfected.

Although it may seem like the bank doesn't have a leg to stand on if it hasn't perfected the lien or can't find a record of it, that is not the case. The lien is not the only part of the loan agreement that puts you on the hook for payment. The security agreement part of your loan contract states that you are using the car as collateral for the car loan. Even if the bank slips up on the lien paperwork, that security agreement gives the bank the right to repossess your car if you don't make loan payments.

Missing liens can make bankruptcy proceedings more complex. If you are filing for a Chapter 7 bankruptcy, your bankruptcy trustee is treated by the courts as the buyer of your car. When the title, minus a lien, transfers to a new owner, the new owner has no obligation to pay the bank any outstanding loan balance on the car. For this reason, your bankruptcy trustee can sell your car to pay your creditors without satisfying your car loan, leaving you without a car and possibly with a loan still due.

In Chapter 13 bankruptcy, you will usually be allowed to keep your car if there is no lien, as long as you can come up with the market value of the car to divide amongst your creditors.

If there is no lien on your car title, you are free to sell your car. The new buyer can put the title in his name, and he is off the hook for any loan obligations still attached to the car you owe. If he gets a loan to purchase the car, his bank can put a lien on the title. However, if you still owe on the loan, even if the car has a new owner, the bank can come after you to pay.

Do Voluntary Car Repos Affect Your Credit?

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The short answer to whether voluntary car repossessions affect your credit is that they do. In fact, a voluntary repo is just as bad for your credit as a standard repossession is. They both appear as a repossession on your credit report. If you cannot pay your car payment, however, the best action for you to take is to notify your lender.

The Federal Trade Commission recommends that you notify your lender as soon as you realize that you cannot make your car payment. Your lender does not want to take the car, so you may be able to work out a deal. You may be able to delay your payments if your loss of income is only temporary, or your lender may revise your payments to a more affordable level. If you can negotiate a deal, this saves your credit from taking a hit because of a repossession.

If your lender will not negotiate with you, you would turn your car in as a voluntary repossession. Your creditor will enter the repossession on your credit report, which means your score will go down. Your credit report may show the repossession as voluntary, but your credit score will still suffer, according to Bankrate.com. Payment history comprises 35 percent of your credit score.

If you do turn your car in as a voluntary repossession, you still owe any deficiency balance on your contract. A deficiency balance is the balance remaining on the car after the lender sells the car at auction. If you can't pay that back, your lender can get a judgment against you, which will also go on your credit report.

The only money you save by voluntarily giving up your car is the creditor's expense that comes with a forced repossession, meaning hiring a repo man. You are responsible to pay any costs the lender must pay associated with a standard repossession. If you are sure that you cannot make your car payments, a voluntary repossession can save you some money.

Even though a voluntary repossession is as bad for your credit score as a standard repossession, you may receive some benefit with the original lender, according to the Experian website. If your credit report shows a voluntary repossession, you maintain a more positive relationship with the lender. You don't burn any bridges with the lender as you do with a standard repossession. The lender might be willing to work with you in the future as soon as your financial difficulties are resolved, according to Experian.

How to Get Your Car Loan Modified & Not Reposessed

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If you're struggling to pay your car loan on time and you're worried that your car might be repossessed, it might be time to contact your auto lender to negotiate a loan modification. Through a modification, your auto lender can lower your payments so that you won't lose your vehicle. But you'll first have to convince your lender that you really have suffered a financial hardship serious enough to keep you from making your payments.

Instructions

Gather the paperwork that proves that you have recently suffered a financial hardship that is making it difficult for you to afford your monthly car payments. Make copies of your most recent federal income tax return, two most recent paychecks, credit card statements and other loan statements.

Contact your auto lender at the phone number included on your most recent loan statement. Explain that you have lost your job, suffered a serious illness or injury or seen your annual income fall, and that this financial hardship has made it impossible for you to pay your auto loan payments. Ask for a modification of your auto loan that will result in lower monthly payments.

Send the copies that you made in Step 1 to your auto lender. Your lender will analyze these papers to make sure that your financial hardship is severe enough to transform your once affordable car payments into ones that are now a financial burden.

Agree to a loan modification if your auto lender approves your request. Your lender may lower the interest rate on your auto loan, change the terms of your loan so that you owe less money each month or reduce the principal balance of your loan. Any of these solutions should lower your monthly payment and keep your car out of repossession.

Can You Buy a Car With a Repo on Your Credit?

2:35 PM No comments

A repossession is a major blow to your credit report, but you can bounce back and move forward. If you have had a car repossessed, you can buy another car, although you may need to be more creative in how you do it. Take your time and find the right deal on the best car for you.

First check with your own bank or credit union, preferably the branch where you normally do business and the employees know you. Smaller, regional banks or credit unions want to build relationships with their customers and may look at your present history with their institution as a future indicator of your ability to pay. You can expect to pay higher interest rates for the loan. If the repossession is recent, within the last year to two years, you may not be able to finance by this route.

Most new car dealers have aggressive finance departments which are used to working with difficult credit situations. They may have a few high-risk lenders who will buy your loan from them. Expect to pay 20 percent interest, or higher, and be prepared to make a 10 to 20 percent down payment. It is also beneficial to demonstrate that your financial problems are in the past. You may not be able to purchase the exact car that you want, but a dealership may be able to help you get into a car for reliable transportation.

Most communities have at least one lot that specializes in buy-here-pay-here financing. These dealers offer lower priced vehicles for a small down payment and weekly payments. You may have minimal choice in vehicles and some of the quality may be questionable, but they will get you into a drivable vehicle. Some of these dealers are not reputable, so keep track of your payments and balances carefully. Most of these dealers are quick to repossess if you miss a payment, with some even using electronic disabling devices to stop you from driving the car if you miss a payment.

Paying cash is a good option since you have already been in trouble with a car loan once. Use a household budget to make money available to save toward the purchase of a reliable car. Consider taking on a second job or some extra work to put your saving's plan into high gear. In six months or less, you should be able to save to purchase a vehicle. Once you complete this purchase, start saving immediately for your next vehicle. Over time, you will be driving nice cars that you own so you never risk repossession again.

Why Not to Buy a Used Car

12:50 PM No comments

Used cars, sometimes called preowned vehicles, are automobiles, usually from a past model year, that other individuals previously owned. Many people choose to purchase used vehicles, rather than new cars, to save money, both on the original purchase price and the automotive insurance premiums. Although buyers may save money by opting for preowned vehicles, many pitfalls exist to buying used cars.

Many used cars, especially those more than three years old and/or those with more than 50,000 miles, come without the warranty protections common to new vehicles. This means that individuals purchasing these used cars are accepting all the liability and risk associated with mechanical failures or other problems and must absorb the costs associated with fixing or replacing the vehicles. However, some states' "lemon law" statutes may provide limited protection against purchasing defective used vehicles.

Another disadvantage to purchasing a used car is that, in many cases, prospective buyers cannot know the true condition of the vehicles in which they are interested. Used cars often have hidden issues due to years of use, and some car dealers either do not know or choose not to reveal their preowned automobiles' true conditions. A prospective buyer can mitigate this threat by obtaining a vehicle history report for the car she is interested in purchasing.

Automobile manufacturers update vehicle designs per year, adding new features, new looks and new equipment to the cars they make. Therefore, new cars -- from the current model year -- will be the most up-to-date vehicles on the road. One key drawback of buying a used car is that it will lack these new stylistic designs, innovative equipment and the latest technology. While this may not be a concern for some drivers, individuals looking for cutting-edge automobiles would do well to avoid used cars.

A key disadvantage to buying a used car, especially one with high-mileage -- at or above 100,000 miles -- is that it will have a much lower resale value than its original price. Cars quickly descend in value once they accumulate miles, as high-mileage correlates to vehicle damage, wear and tear. While not a concern for those who plan to keep their cars for long periods of time, individuals looking to sell their vehicles in the near future -- without putting large numbers of miles on them -- would do better to consider new cars.

Texas Title Loan Laws

4:40 AM 1 comment

A title loan is one in which you give a lender a lien on your vehicle in exchange for funds. In Texas, title loans must comply with state loan and title laws. You should always consult with a Texas lawyer if you need legal advice about the state's laws about title loans.

A title loan can seem like a good idea, but these loans can often be disastrous. When you take out a car loan, you agree to give the lender a legal interest in your car, known as a security interest, in exchange for a set amount of money. You agree to repay this money, with interest, at the end of a certain amount of time, typically 30 days. If you fail to repay the loan at that time, the lender legally owns your car and can take it from you.

To get a title loan, you have to own your car. This means that if you bought your car with a loan, you must have paid off the car loan and have a clear title. Texas requires that in order for anyone to legally own a car, the car title must be in that person's name. If you want to sell your car that has a lien on the title, you must first pay off the loan and get the lien released by the lien holder. Once this happens, you can get a new title from the Texas Department of Motor Vehicles.

While many states have outlawed car title loans, and other states have laws that specifically allow for these loans, Texas is one of a handful of states that allows for title loans because state law neither specifically outlaws or allows for them, according to the Center For Responsible Lending. A credit services organization in Texas can offer title loans but must register with the Texas Secretary of State's Office.

Title loan companies often seek to take advantage of people in financial distress by offering the availability of quick cash in exchange for a security interest on the car. However, when you give the lender a security interest in the car, the lender has the right to take possession of the car when you fail to repay the loan. Because the lender has the security interest, it can take possession as soon as you default on the loan and does not need your permission to do so.

Tuesday, January 31, 2012

Definition

Process

Benefits

Considerations

Warning

Monday, January 30, 2012

Legality

Credibility

Solution

Considerations

Sunday, January 29, 2012

Why Refinance?

Refinance with Your Current Lender

Contact a Third Party Lender

Contact a Dealer

Things to Consider

Instructions

Manufacturer Financing

Traditional Lenders

Friday, January 27, 2012

Instructions

Peaceful Repossession

Notice

Right to Cure

Personal Liability

Considerations

Significance

Misconceptions

Effects

Potential Problems

Prevention/Solution

Wednesday, January 25, 2012

Instructions

Tuesday, January 24, 2012

Licensure

Notice of Right to Cure Default

Keep Peace

Sale

Sale Proceeds

Instructions

Monday, January 23, 2012

Bank Contact

Your Car Payment

Proving Insurance

Future Percautions

Friday, January 20, 2012

Car Loan Basics

Finance Charges

Simple Daily Interest

Front-Loaded Interest

Thursday, January 19, 2012

How a Chattel Mortgage Works

Chattel Mortgage Terms

Who Uses Chattel Mortgages

Benefits

Tax Considerations

Wednesday, January 18, 2012

Instructions

Tuesday, January 17, 2012

Costs

Repairs and Reliability

Fuel Efficiency

Safety

Instructions

Ownership

Joint Applicant

Considerations

Tip

Instructions

Monday, January 16, 2012

Value

Income

Credit Score

Collateral

Lease Assumption

Sell Your Vehicle

Dealer Trade

Early Termination

Sunday, January 15, 2012