Car Lease Vs. Buying What Is Cheaper?

When it comes to getting a new car there are generally two options: leasing the vehicle or buying it. There are many pros and cons for either option and the decision often comes down to personal preference and finances.

Short Term Cost

Leasing features several advantages over buying. When leasing a car there is little if any down payment, the monthly payments are less and there is generally lower sales tax, because tax is only paid on the amount of the car's value that is used by the lessee. When buying a vehicle there is generally more money required initially, there will be higher monthly loan payments and more taxes paid.

Long Term Costs

In the long term, once a car loan is paid off there are no more payments and the car is yours until you decide to sell it or trade it. Although you will still have repair expenses, there will be no regular monthly payments. If you lease a vehicle you will continue making lease payments, then you'll make any down payments for a new lease when your current one expires. The lack of future monthly loan payments makes buying a car the least expensive financing option in the long term.

Repairs

When comparing the cost of leasing versus buying you must consider the cost of repairing the vehicle. Because lease terms are generally within the warranty period, the expense of repairing the vehicle will be minimal. If you purchase the vehicle, however, once the warranty expires, the cost of repairs will be entirely yours to cover.

Lease penalties

When considering the cost of a lease there are some less visible fees and penalties to consider that are not a concern when you buy a vehicle. When you sign a lease you receive a mileage allowance. Once these miles have been exceeded fees are assessed at a certain rate per each additional mile. In addition, if the dealer considers the amount of wear and tear on the car to be excessive, or if you pull out of the lease early, penalties may be assessed. There are no such penalties when you buy a car.

Cash Payment--No Loan

Although most people do not have the resources to pay for a vehicle without the assistance of a loan, buying your vehicle with cash is another option that affects your decision. Because you'll be paying for the vehicle yourself, and not shelling out interest, it is the least expensive option when compared to making lease payments or buying the vehicle with financing. Buying the car with cash also eliminates the need for monthly payments. If your car is new it will be under warranty, so your repair costs will be minimal.

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What Is the Diffence Between Trade Value and Cash Value on a Car?

One way to get rid of a current car and buy a new one is to trade the car in at the dealership. For a trade in, the dealer pays what it considers to be a market value for the trade, and the trade value is applied against the purchase price of the new car. Trade and cash values have different meanings to the dealer.

Cash Value

At the dealership, the used car department appraises your trade in and gives the car a value. This value is the wholesale value of the car, and if purchased at this price, the dealer should be able to sell it for a profit. The appraised value is the cash value. If you brought the car to the dealer to sell it, not as a trade, this is the value you would receive.

Trade Value

The trade value is the amount listed for the trade in on the deal proposal or purchase order. The trade value may be different than what the dealer thinks the trade is worth -- the cash value. A high trade value may be used to make the deal more attractive to the new car buyer. A low trade value offer most likely means that the dealer is trying to make extra profit by offering the customer less than the trade is worth.

Negotiating the Trade Value

For the dealer, the real value of the trade in is the cash value. Any difference between the trade value and the cash value is either a reduction or increase of profit to the dealer. If the dealer offers a high trade value, the negotiating room on the new car is reduced. Dealers may offer low trade in values in hopes that the customer will accept and allow the dealer to book a bigger profit. A car buyer must protect herself by researching the value of her trade before heading off to the dealership.

Trade Value When Upside Down

If the outstanding loan balance on the trade in is greater than the cash value, the trade is "upside down." If the cash value is used as the trade value on the new car purchase order, the trade will show negative equity. Car lenders do not like to see negative equity in a car finance deal. To avoid showing negative equity, the dealer will increase the purchase agreement on both the trade value of the trade and the sales price of the new car to erase the negative equity -- at least on paper.

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Can I Get a Car Loan After a Discharge of a Bankruptcy?

Bankruptcy is a drastic way to get out of debt because it releases you from some or most of your bills, depending on which type you file, but it also stays on your credit bureau records for a decade, according to the Federal Trade Commission. Lenders such as car loan providers are less likely to give you credit when you have a bankruptcy on your records.

Rebuilding Credit

Bankruptcy does not keep you from getting new credit forever, but it takes time to re-establish your finances so you can qualify for larger loans, like automotive financing. Maintain steady employment and get smaller loans first, Bankrate.com columnist Tara Baukus Mello advises. Open a secured credit card account if banks refuse to give you a traditional card. The secured account requires a bank deposit to guarantee payment of your credit line. Make every payment promptly on your new accounts to show potential car loan providers that you are serious about rebuilding your credit.

Other Factors

Raise your chance of qualifying for a post-bankruptcy car loan by saving up the largest possible down payment. This reduces the lender's risk because it brings down the amount of money you need to borrow, Baukus Mello advises. An auto loan is a form of secured credit because the creditor can seize your car for non-payment and sell it to recoup some of the loan balance. The lender has a better chance of covering most or all of the owed balance when you borrow a low amount.

Refinancing

You are likely to get stuck with a high interest rate on your post-bankruptcy car loan because you are labeled as a sub-prime buyer. The high rate costs you hundreds of dollars over time, so Warren Clarke of the Edmunds automotive website recommends refinancing your loan at better terms after two to three years of rebuilding a good credit rating. Check with your credit union, bank and online lenders for financing at better terms.

Time Frame

Bankruptcy's effects do not last forever. The impact on your credit diminishes within several years, even though the bankruptcy still appears on your credit reports, Baukus Mello explains. Lenders focus most heavily on your recent account activity, so pay your bills on time and check your Experian, TransUnion and Equifax reports for potentially harmful mistakes. You get free report copies yearly from AnnualCreditReport.com, the FTC advises, and you have a right to to dispute mistakes and get erroneous information removed.

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How to Calculate Yearly Interest on a Car Loan

On a $20,000 car loan at 7 percent, the total interest paid is almost $3,800. The way car loan interest is calculated means the interest amount is different on each payment and for each year of the loan. If you understand how loan interest works, you can determine what portion of that $3,800 is paid to the car cost each year.

Loan Interest Function

Car loan interest is calculated on the amount of the outstanding loan balance. The interest rate is computed for a monthly rate by dividing the annual rate by 12 and that rate is applied to the loan balance to determine the interest amount on the next payment. The amount of the car payment not attributed to interest is the amount that goes to reduce the loan balance. The interest due always controls how a payment is divided between principal and interest.

Calculate A Payment Distribution

On a $20,000 car loan at 7 percent for a five-year term, the monthly payment would be $396.02. Divide the annual 7 percent rate by 12 to convert to a monthly rate of 0.5833 percent. When this rate is applied to the original $20,000 loan balance, the interest on the first monthly payment is $116.66. Subtract the interest from the monthly payment and the principal reduction from the first payment is $279.36, leaving a loan balance of $19,720.64.

Yearly Interest Calculation

To calculate by hand the car loan interest for an entire year, the monthly interest and principal reduction calculation must be repeated for each of the 12 monthly payments. On the example loan, the interest on the second payment would be $19,720.64 times 0.5833 percent, giving interest of $115.03, principal reduction of $280.99 and a new loan balance of $19,439.65. If this process is repeated 10 more times, the total interest on the example loan for the first year is $1,290.33.

Loan Calculation Tools

One method to automate the car loan interest calculation is to set up a spreadsheet using software like Microsoft Excel or OpenOffice Calc. Set up columns for the monthly payment, monthly interest rate, interest, principal and loan balance. Use math functions to calculate the principal, interest and loan balance each month, carrying the results into the next row for the next month's calculation. Once the spreadsheet is set up you will be able to find the interest paid for any set of car loan payments.

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How to Calculate Swingarm Leverage Ratio

Because off-road motorcycles, particularly those used in motocross events, must be equipped with shock absorbers able to handle large, jarring bumps without losing traction, motorcycle engineers developed swingarm shocks, a system that places the rear axle on a lever that's attached to a shock absorber. Using the mechanical advantage of leveraged forces, this allows shocks to absorb bumps much larger than the length of their springs. On a swingarm with a 2:1 leverage ratio, the rear axle moves 2 inches for every inch of compression the spring absorbs. The leverage ratio merely represents a measurement of the difference between the axle and the shock's movement.

Instructions

1

Place a plastic wire tie next to the rear shock's head when the motorcycle is parked. Secure the tie tightly enough so it won't slide on its own and must be moved by hand or by the movement of the shock.

2

Drive the motorcycle over terrain rough enough to exceed the swingarm's capacity, where the motorcycle "bottoms out" on its rear axle. Motocross bikes may need a particularly rough terrain -- most likely with jumps -- to exceed the capacity of their rear shock absorber.

3

Measure the distance between the top of the shock absorber's head and the bottom of the plastic tie. Record this measurement as R2.

4

Remove the nuts that attach the rear shock absorber to the final drive using a crescent wrench. Remove the axle and final drive from the shock absorber. Using your hand or a block, maintain the rear axle's position when you remove the shock.

5

Measure the distance from the bottom of the axle to the ground, and record it as measurement A1. Lift the axle to its highest point in suspension, recording it as A2. Calculate the axle's travel as A2 - A1. Record this number as R1.

6

Reaffix the shock absorber to the final drive using a crescent wrench and fastening hardware you removed from its moorings.

7

Calculate the swingarm's leverage ratio by dividing R1 by R2. Use this figure, R3, as the basis for ratio, R3:1.

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Car Finance Problems

For many people, obtaining financing is the only way they can afford to purchase a new or reliable used vehicle. Financing can be obtained from a car dealer, bank or credit union, and interest rates can vary based on factors like current economic conditions, the availability of dealer incentive programs and your credit rating. Financing a vehicle does pose some potential problems for the borrower.

Insurance Costs

Whenever you finance a vehicle, your lender also has a financial interest in the purchase. As part of the financing agreement, your lender will most likely insist that you carry comprehensive and collision coverage, which pays to repair or replace the vehicle if it is damaged or stolen. Comprehensive and collision can comprise as much as 50 percent of your total insurance premium. You'll need to maintain comprehensive and collision until you've paid off the loan.

Falling Behind

You don't officially take full ownership of the vehicle until you've fulfilled your obligation to the lender, which could take five years or more. In the meantime, a job loss or illness can create financial hardship for you. If you can't keep up with your payments, your lender can repossess the vehicle without your consent. When a lender repossesses a vehicle, it typically sells it at auction to get whatever value it can. You'll still be responsible for paying the outstanding balance, as well as the fees charged by the repossession company. Your credit score will also plummet.

Poor Credit

If you've had a history of late payments or a previous repossession or bankruptcy, expect to pay much higher interest rates than someone with favorable credit. To be able to afford the monthly payments, you may have to settle for a vehicle that does not meet your needs or may prove unreliable. Dealers may be reluctant to offer you financing unless you can make a large portion of the purchase in cash.

Upside-down Loan

If you still owe money on your current vehicle when you trade it in, the dealer may allow you to roll your existing loan balance into the new loan. As a result, you may immediately owe more money than what the new vehicle is worth, a condition commonly referred to as being "upside down." If the vehicle is destroyed in an accident or stolen, your insurance company will only pay to replace it based on its current value, and you'll be forced to come up with the difference. The only way you may be able to avoid this is to purchase gap insurance when you buy the car, which will cover the balance you owe.

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The Girl's Guide to Buying a Car

Buying a car can be an intimidating process, especially if you are a girl who is car shopping on her own. The media often portrays girls as being nave creatures who cannot fend for themselves when it comes to vehicles. However, with the right knowledge and information, any woman can confidently search the classified ads or swim with the sharks at dealerships.

Know How Much You Can Afford

When buying a new car, a car shopper should figure her budget so she knows exactly what she can afford. This is especially helpful if she needs to finance a car and make monthly payments. According to Consumer Reports, a car shopper should also take into account how much of a down payment she can make, as this will affect the monthly auto payment. A rule of thumb to follow, according to Consumer Reports, is to keep the monthly car payment and auto insurance price to less than 36 percent of the buyer's monthly income.

Seek Your Own Financing

Before setting foot on a car lot, a car shopper should have her own auto loan in place from a credit union or bank. Dealerships try to attract customers with attractive financing deals and incentives, but do not offer the same overall savings as other financial institutions.

Know Your Needs

A car dealer or private seller may try to make a small sedan in a girl's favorite color seem like the perfect car for her. This small car may not meet her needs if she has children or if she often drives over rugged terrain. Creating a list of reasons to purchase a new car can help the shopper stay focused, as well as help the dealer show her the most appropriate vehicles on the lot.

See the Vehicle History Report

When a girl is looking to purchase a used car from a private seller or a dealer, she should always look at the vehicle history report. These reports show the number of accidents a car has had, and the number of owners. Determined private sellers and reputable dealerships often have a vehicle's history report on file.

Test-Drive the Car to Your Mechanic's

Dealerships often have their own mechanics look at a car and print a report of their findings. Nevertheless, a car shopper should insist on making a pit stop at her own mechanic's garage during a test drive. If a private seller or dealer makes a fuss about a customer wanting to have her own mechanic look at the car, this is a cause for concern and a sign that this might not be the right car to purchase.

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Auto Financing Resources

You can pursue a car loan from a variety of lenders, locally or nationally based. Various lenders exist to accommodate different kinds of borrowers, good or bad credit alike. Consider your various resources; choosing the right lender can save you thousands of dollars in interest rate charges over your loan term.

Local Lenders

A variety of local lenders likely exist in your area. Local lenders include credit unions, local banks and nationally based lenders with a local presence, such as Chase, Bank of America or HSBC. These lenders determine interest rates based on a tier scale. The lowest rates are often advertised at bank websites, but only borrowers with excellent credit qualify for the lowest rates. Those with less-than-perfect credit could pay interest rates double or triple the best rates.

Special-Circumstance Lenders

Some lenders cater to high-risk borrowers who don't necessarily have bad credit. These borrowers include first-time buyers who lack credit history (good or bad), recent graduates or military personnel. Rates for these loans are not competitive, meaning you may not obtain the lowest rate available. Many vehicle manufacturer banks offer these types of programs. Find out more by visiting vehicle manufacturer websites to view current offers and finance information.

Subprime Lenders

Subprime lenders offer loans to high-risk borrowers, or people with poor credit who may not have other options. Interest rates are not attractive; many offer rates over 20 percent. Subprime lenders also require a large down payment and a shorter loan term. Loans from subprime lenders should be a last resort because of the high price of interest paid over the term of the loan. Also, the shorter term requirement and high rate often result in a high monthly payment.

Manufacturer Banks

To entice new car buyers, manufacturers offer low rates that can't be beat by other lenders, such as zero-percent financing or 3.9-percent financing for 72 months. Offers change monthly and are advertised on manufacturer websites. These banks do not use a tier system like traditional lenders. If you apply for special financing, you are either approved or you're not; your rate won't increase. Manufacturer banks are a bit more lenient, as well. You don't need excellent credit for to qualify.

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Questions to Ask: Buying and Financing a Car

Purchasing a car can be both a stressful and fun time for a consumer, especially a first time buyer. A car may be one of the first purchases a consumer makes on her own, and comes with a sense of independence. Asking the right questions at the dealership can help the buyer make the right decision not only on the financing, but also which car will best suit her needs.

Should I Buy or Lease?

Many dealerships offer special promotional rates and pricing for leasing a new car instead of buying. Talking over the benefits and disadvantages of both can help the buyer know which route is best. A lease allows the customer to, in a sense, rent the car for an extended period of time. Monthly payments are made each month, and at the end of the term the car is returned to the dealer and can be either bought out by the customer or traded for a new car. Leases come with a mileage limit, and can result in additional fees if the driver goes over the limit. Customers who are unsure of what type of car they want or those who like to change cars every few years may be a good candidate for a lease. Unlike leases, buying a car allows the customer to make monthly payments towards full ownership of the car. At the end of the loan term, the customer owns the car outright. Purchasing a car can be best for those who have a Job that requires travel, such as a sales rep.

Is It Best to Buy New or Used?

After deciding on a budget and whether to lease or buy, the customer will then need to determine if a new or used car will best fit his needs. New cars typically come with promotional interest rates for credit qualified customers, along with the possibility for cash back incentives and warranties. The buyer also has the benefit of knowing that he is the one putting each mile on the car, providing a sense of security. However, used cars have the benefit of coming with a lower purchase price, which can allow a buyer to get more car for the money. Also, buying a used car allows someone else to take the large hit in value that comes along with purchasing a car, since the car depreciates most in the first few years of ownership.

How Does Financing Work?

Once the buyer has selected the car she wants to purchase, the next question should be how the financing process works. She may ask if the dealership offers an in-house finance department that will secure a loan, or if she can pursue finance on her own, which may be a better bet. Questions about what, if any, down payment will be required, as well as if a co-signer is needed to secure financing are also important. After either party secures financing, the buyer should then inquire about the terms of the loan. Loan terms can include the interest rate, the total number of payments, the payment due date, and the amount of each monthly payment. Search the Internet for great deals on car loans through private lending clubs and organizations.

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How to Sell a Car With a Cosigner

The co-signer on your car loan signed the loan agreements with you and is jointly responsible to pay the debt. However, unless your co-signer is listed on the title as the co-owner, you do not need your co-signer's permission to sell your car. You still need to work with the lender to release the lien on the title when you sell the car, but this is a process that does not need to involve the co-signer. If your co-signer is listed on the title, this complicates the process slightly and you will need this person's signature to sell the car.

Instructions

Co-Signer Not on Title

1

Look up your car's value on a website that estimates used car prices, such as Edmunds, Kelley Blue Book or NADA Guides. Compare the anticipated sale price to the balance on your car loan, which you can find on the most recent statement. If the sale price is less than the loan balance, you might want to wait before selling the car. Otherwise, you will have to come up with the difference in cash at the time of the sale.

2

Contact your lender and explain that you are planning to sell your car. Ask how the lender processes the lien release.

3

Sell your car to a dealership or used car lot to easily process the sale. The dealership or lot will work with the lender to pay off the car loan, get the title and give you the remaining money. If the sale does not fully pay off the loan, you must pay the difference.

4

Sell the car to a private buyer by having the buyer meet you at the lender's office to complete the sale. The buyer can write a check or give cash directly to the lender to satisfy the lien and release the title to you. You then sign the title over to the buyer and get the remainder of the purchase price, if any.

Co-Signer on Title

5

Contact your co-signer and co-owner and let him know you would like to sell the car and need his signature on the car title. If he does not want you to sell the car, you need to convince him otherwise to continue. You might need to draw up an agreement to give him part of the proceeds of the sale, especially if he helped pay the car loan at any point.

6

Follow the steps listed in the previous section to contact the lender, determine the loan payoff amount, find a buyer and arrange a meeting place for completing the sale.

7

Bring the co-owner with you to the sale location. Both of you will sign the title over to the buyer. If the co-owner does not live in your area, you need to mail the title to him to get his signature. This is easy if you have the title in your possession, but if the lender holds it, which is often the case when you have not paid off the loan, you have to work out the details with the lender.

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How Is APY Calculated on an Auto Loan?

The interest rate, or Annual Percentage Yield (APY), is one of the most important things to consider when shopping for an auto loan. The sticker price, down payment, dealer incentives and trade-in value for an existing auto are other critical factors for making a purchase. These factors are fairly easy for a consumer to control or be aware of; however, the loan interest rate can add hidden costs to a car purchase.

Definition

The Annual Percentage Yield (APY) for an auto loan is the interest rate applied to the loan that considers not only the balance of the loan but the interest that accrues to the loan each period. The APY may be confused with the Annual Percentage Rate (APR), which is another rate quoted for auto loans, but the APR is simply the basic interest rate charged each month multiplied by 12.

Use

The APY takes into account the effects of compound interest while the APR does not. The APY considers the total amount owed on an auto loan, which increases every month due to the additional interest that has been charged on the unpaid balance. This increase will have interest charged on it in the next month as a result of interest compounding.

Calculation

The APY can be calculated by using the following equation: (1 + r/n)^n - 1, where r = the loan rate and n = the number of compounding periods. This equation is somewhat tricky but can be done easily in a spreadsheet using the POWER function or by using a financial calculator. There are also many automobile buying websites that provide free calculators to do the work. Understanding this equation can enable consumers to compare loan products on an equal basis when one dealer quotes loan interest rates in terms of APY while another uses APR.

Warnings

Due to the inclusion of compounding, the APY is higher than the APR. Some lenders use this factor to make their loan products look less expensive by quoting the APR to customers, rather than the APY. Conversely, banks will use the APY to quote their interest rates, making their checking and savings account products look more attractive to potential depositors. Automobile lenders usually advertise new car loans using APR rather than APY. The most beneficial loan for a consumer would be the lowest APR auto loan. Consequently, understanding the distinction between APY and APR is important for consumers in order to make the most informed decisions.

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How to Get Rid of a Car When You Owe More Than It Is Worth

People get rid of cars every day. Some people choose to trade in their vehicles, while others sell the car themselves. However, when you owe more than your car's worth, getting rid of it is a bit tricky. There are several ways to get rid of a car when the loan balance exceeds the vehicle's value.

Instructions

1

Trade in the vehicle if you plan to buy a new car. Dealerships will offer a trade-in value, which is often less than the vehicle's worth. This difference is called "negative equity," and dealerships tack this amount onto your new car loan.

2

Sell the vehicle for more than it's worth. If you owe more than your vehicle's worth, sell the car and pick a sale price that's enough to pay off the loan balance. To get your asking price, clean the vehicle's interior and exterior before showing the car to potential buyers, and make any needed minor repairs.

3

Pay the remaining balance. If a potential car buyer is unwilling to pay more than the vehicle's worth, agree to sell the car at a lower price and then pay off the loan balance (the difference between what you owe and the vehicle's value) with your own funds.

4

Allow someone to assume the car loan. To get rid of a car loan when you owe more than the car is worth, find someone to assume the car loan. Contact your auto loan to see if the company allows car assumptions. If so, another person can take over your car payments become responsible for the vehicle.

5

Consider a voluntary repossession. If you can no longer afford the vehicle and you're unable to sell or trade in the car, take the vehicle back to the dealership. The dealership will sell the vehicle at auction. If the proceeds aren't enough to pay off the loan balance, you're obligated to pay the difference. If not, dealerships report the delinquent balance to the credit bureaus.

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Can You Refinance Your Car After Two Years of on Time Payments Without a Co-Signer?

After paying a car loan for two years, you should have a positive loan payment history even if you used a co-signer. However, your credit score does not rely solely on one loan. Banks also consider various personal and credit information, such as your debt, employment status and the time you've lived at your current address.

Your Credit Report

Take a look at your credit history and score before applying for a refinance. If you originally needed a co-signer because of poor credit, ensure your current credit report reflects on-time payments over the past two years. Annualcreditreport.com provides one free credit report each year from the three major credit bureaus. You can't obtain your score for free, but purchasing it may prove worthwhile. If you any find errors, correct them with the credit bureau and business who reported the inaccuracy before applying for your refinance.

Bank Determining Factors

Banks determine your loan eligibility based on your income and other information. You must prove that you can afford your car payment and the other bills or debt that appear on your credit report. Expect to prove your income by providing a lender with your most recent paystub. Banks prefer a consistent two-year employment and address history. Banks also consider your mortgage or rental payment to determine if you can afford your car payment. You should not apply for a loan while your credit report shows past-due accounts.

Application Process

To apply for another loan, have your personal information ready to provide to the lender, such as your Social Security number and date of birth. You'll need the name, address and telephone number of your employer. Figure out your gross annual income based on your most recent paystub. Some banks require the name of your mortgage company or landlord to verify your monthly housing payment. Obtain your loan's payoff amount so you know how much to apply for. Have your VIN (vehicle identification number) on hand; you can find it on your title or insurance card.

Transferring the Loan

If you owe more than your car is worth, you might have to put money down. Once your application is approved, you can discuss your approval rate, term and monthly payment with your lender before signing contracts. Once you agree to the terms, the co-signer must sign his portion of the title to release ownership. Expect to provide proof of insurance to your lender, as well. Your new lender then pays off your old loan and becomes the new titled lien holder.

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What Does Financing a Car Mean?

Many consumers do not have the cash to buy a car outright and thus must consider financing. Financing a car means borrowing funds from a creditor or lending institution to complete the purchase.

Preapproval

Some borrowers who finance a car apply for preapproved loan status through a creditor such as a dealership or bank. A preapproved borrower can purchase any creditor-accepted vehicle with the preapproved loan amount just like using cash.

Lender Choices

Borrowers can find financing options through banks, car dealerships or loan brokers. The value of the new car will be the loan guarantee (i.e., the lender owns the car until the loan is fully repaid). Borrowers also may choose to self-finance by borrowing against the equity in something they already own, such as a house or retirement savings portfolio, or against the cash value of an insurance policy. In this case, the object borrowed against becomes the loan guarantee in event of payment default.

Early Repayment

The best way for a borrower to make financing an automobile cost effective is to pay off the loan in its entirety as quickly as possible. The borrower should accept the loan repayment terms that are most comfortable for his budget but then pay extra each payment to pay less interest over the life of the loan.

Financing Varies

Financing companies--as well as loan terms and rates--can vary widely from lender to lender. The best option for a borrower seeking to finance an automobile is to apply to several lenders even if the borrower is approved for financing by the dealership selling the car.

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How to Lease a Car in Miami, Florida

Leasing an automobile in Miami is a process that is more involved than purchasing a car outright. Advantages of leasing are that less money is required for a down payment in a lease, and your monthly payments will be less than for a purchase. Consequently, you can possess a better car if you lease than if you buy. Most Miami automobile dealerships will gladly guide you through the paperwork involved, but knowing leasing terms and what points are open for negotiation will help.

Instructions

1

Fill out a credit application at the dealership. You will be required to present your Social Security number and undergo a credit check. Many Miami car dealers use their company's financial arm for financing a lease; however, others shop your loan to many sources. Limit the number of credit "hits" on your score by restricting the number of sources with the dealer.

2

Read the final leasing paperwork closely once you have been approved. One of the restrictions is an annual mileage limitation, with a overage fee paid at the end of your lease term. As Miami is a vast area, and if your work or pleasure takes you out of Miami-Dade County frequently, your mileage will accumulate and overages may occur, adding to your end-of-lease debt to the financing company. Some dealers will negotiate the mileage limitation, and it is to your benefit to ask.

3

Conclude your contracted lease term to coincide with Miami's slow summer season. This will put you in a position to negotiate a new lease on a new car at a preferable price. This is a negotiable point when entering into a lease contract.

Determine the warranty period of your car and lease only for the length of the warranty, never longer.

4

Select to lease on an "open-ended" basis. This leaves the price of buying your car at the end of the lease open to the market value of the car at that time. Miami's slow season is summer, and that works to your advantage two ways: you get a better "buyout" price in slow months, and summer is just before the introduction of the new cars for the year, again causing lower prices on existing and used cars.

5

Make your payments on time. This benefits your credit score and enhances your credit worthiness when you pursue a new lease or purchase your car with a loan.

6

Return the car at the end of the lease period in the same condition in which you received it. Miami's heavy congestion can lead to fender benders which must be fixed prior to turning the car in. The salt air can erode the paint. Do not alter the car in any way that changes it from the car that was originally leased, or charges will be made to restore the car to its original condition.

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Car Repo Advice

Before you decide to return your vehicle, call your lender to find out if you can avoid repossession; your lender may be able to help you. You might have other options as well. Repossession substantially affects your credit rating. If keeping your car isn't an option, consider returning your car voluntarily.

Call Your Lender Immediately

Call your lender to find out if it can help you avoid repossession. Banks stand to lose money from repossessing a car. For this reason, your lender might have a program that offers relief to distressed borrowers. In some cases, you can defer your loan for several months, which allows you to skip payments and avoid penalties usually associated with non-payment, such as late fees or negative credit reporting. Your lender might also offer an opportunity to resign your loan contract for an extended term, which can lower your monthly payment amount.

Pursue Other Options

Consider other options available to you to avoid the repossession process. Transfer your loan to another lender, known as a refinance, to lower your monthly payment by as much as $100 per month. Payment difference will depend on your current and approved interest rates. If you do not qualify for a refinance because of recent non-payment issues, try to find a cosigner. Selling your vehicle may be another option. You must sell the vehicle for the loan's payoff amount, or you may have to borrow money to cover the balance due.

Avoid Involuntary Repossession

If all other avenues fail, you can call your lender to return your vehicle voluntarily. An involuntary repossession occurs when the bank sends a repossession company to take the vehicle back. This can prove an embarrassing situation if you're still driving the vehicle or have neighbors close to your home. The vehicle can be towed from just about anywhere, such as at your place of employment or a parking lot while you are shopping at a store. A voluntary repossession allows you to set the time and date for the vehicle's return.

Prepare to Pay

Once the bank collects the car, it will sell it at auction for wholesale price or sell it privately for retail price. Wholesale pricing is thousands lower than retail price. The vehicle's sales price is then deducted from the loan balance and you must pay the amount due. Your bank can---and will---exercise its legal rights to collect payment. The bank may not pursue payment immediately, but expect the bank to sue you and eventually garnish your wages unless you settle the balance. If you settle, the IRS considers the canceled balance as income, and you must pay taxes on it. You may have to pursue bankruptcy to avoid future payment.

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Can You Get a Car Loan With 55 Percent Debt to Ratio?

Having a high amount of debt makes it difficult to get an auto loan, but not impossible. The catch is that any loan you get is likely to have a higher interest rate than it would if you had less debt. By lowering your ratio, you can improve your chances of getting the loan you want.

Why Debt Matters

Debt itself doesn't deter lenders from approving your auto loan applications. After all, credit reporting agencies use debt to determine your credit score and tend to assign you a lower score if you don't have a long credit history. Lenders don't care simply about how much debt you have but how much you have relative to two other important numbers: your income and your credit limit. Your debt-to-income ratio, also known as your DTI, is the percentage of your monthly income you owe to creditors every month. For example, if your monthly income is $4,550 and your minimum required payments total $2,502.50, your ratio is 19 percentage points above the 36 percent lenders prefer. If the outstanding balances on your credit card accounts total $8,250 and your limits total $15,000, your debt-to-credit ratio is five points above the preferred 50 percent.

Comparing Rates

The interest rates lenders offer you on auto loans may be as many as four percentage points higher than those they offer other borrowers, according to CreditReport.com. Yet not every lender is the same, so shop around for the lowest rate you can find. Shop within a 30-day time frame to keep inquiries from lowering your credit score.

Improving Your Ratios

Lower your DTI using the debt snowball plan to eliminate debt. Make a list of your debts, ordering them either by interest rates, highest first, or dollar amount with the lowest balance first. Pay the minimum required on each debt except the one at the top of your list, toward which you pay as much money as you can set aside. Continue this habit until you pay off the first debt on your list, then use the money you would usually use for payments on that debt to pay off the next debt on your list. Reduce your spending and increase your income if possible to expedite the process. Raise your debt-to-credit ratio by keeping credit card accounts open after you pay them off.

Avoiding a Loan

Before you use an auto loan to buy a vehicle, calculate how much the loan will cost you in interest. Multiply the proposed monthly payments by the number of months in the term and subtract the cost of the car. The result is how much of the loan is interest -- in other words, money you could save by forgoing a loan altogether. If you don't need to buy a new vehicle immediately, save money until you can afford an inexpensive used vehicle in working condition. Even if your current vehicle doesn't run, taking public transportation and riding a bike are help you on your way to buying a new one.

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The Average New Car Depreciation

New cars cost a lot of money, yet they immediately lose part of their value when you drive off the dealer's lot because it changes from "new" to "used" at that point, according to the Buying Advice automotive website. This loss, called depreciation, continues for the life of the automobile, although the rate slows down over time. Depreciation sometimes causes problems if you have a car loan, depending on the financing terms.

Depreciation Rate

The average new car depreciation rate depends on the make and model of your vehicle, but the Cars Direct vehicle buying website explains that it averages 15 percent per year. The steepest drop in value happens when you take possession of your new vehicle, which reduces its value by 20 percent. The car depreciates about 15 percent during each of the next four years, then slows down.

Factors

A vehicle's exact depreciation rate is influenced by many factors, like reliability, demand for a particular model and even your state of residence. Car owners tend to keep reliable or popular vehicles, giving them more value. Consumer Reports advises that cars that are commonly used in rental company fleets depreciate more quickly because they get sold off at highly discounted prices when the companies are done with them.

Considerations

You influence your car's depreciation to some extent by the way you care for the vehicle. Automobiles with high mileage, body damage or mechanical problems are worth less than identical models that are in good shape, according to the website BuyingAdvice. A well cared-for car draws more money if you resell it to an individual or dealer or trade it in for another vehicle.

Warning

You can easily get upside down on your car loan if you buy an automobile with a high depreciation rate, make little or no down payment and stretch out the financing for several years. Being upside down means that you owe more for the vehicle than it is worth for resale, Bankrate writer Lucy Lazarony explains. You have to come up with the difference if you need to sell your car, or the dealer might roll the outstanding balance into your next car loan, putting you in an even worse position. If you cannot pay your loan and the car gets repossessed, you are responsible for the difference between the loan balance and the amount for which your bank sells the vehicle.

Prevention

You cannot prevent new car depreciation, but you can keep it from causing financial problems by making the biggest possible down payment and taking out the shortest possible loan, Lazarony advises. Consider buying a used car because the worst of the depreciation is over in the first few years. Keep the vehicle as long as possible, but keep it in good condition so it is worth more when you sell it.

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Car Loans for People With Good Jobs But Limited Credit History

Unless you purchase a used car cheaply from a private owner, you probably are going to have to take out a loan to pay for your vehicle. If you don't have any credit history, you may run into trouble. You can still get a loan using a co-signer or by putting more money down. As long as you have steady income and have worked for at least 18 months, most lenders will consider your application.

No-credit Loans

You may need to get a loan for people with no credit. Usually, to qualify for this type of loan, you must have 18 months of stable work history and the ability to offer a down payment. Some lenders require large down payments from people who have no credit, while other lenders will accept a smaller down payment, but charge higher interest to people who do not currently have enough credit history to qualify for regular loans.

Co-signed Loans

Many auto lenders accept cosigners on loans for people with poor or no credit. If someone with good credit is willing to co-sign your loan, you may be able to qualify for better interest rates or lower down payments. Keep in mind that legally, your co-signer is equally responsible for the loan, so you must make all payments on time to avoid damage to both of your credit histories. Do not use a co-signer if you don't think you can make payments on time.

First Time Loans

If you have no credit whatsoever, lenders may be willing to take a risk if you are making enough income to cover your monthly payments. In general, you can borrow up to 15 percent of your income and still qualify for loans. For example, if your pre-tax income is $3,000 per month, you can qualify for loans of up to $450 per month. You may not need a co-signer if you have a stable source of income and enough income to cover the monthly payments.

Improving Credit

If your lack of credit history is interfering with your ability to secure a vehicle loan, you may want to strengthen your credit history and try again. Opening a bank account or getting a credit card in your name can help build your credit history. Make all payments on time to keep your credit history positive. After six months to a year, you may qualify for loans due to your greater credit history.

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How to Purchase a Car Through an Independent Owner

You have decided to skip the dealer and purchase a vehicle directly from a private owner. There are several things you will need to know. You have to make sure the automobile is mechanically sound, negotiate a fair deal, pay taxes, and have the car registered to be on the road. Doing your homework and creating a plan of action in advance may save you future headaches.

Instructions

Before You Look

1

If you don't intend to pay cash for the car, get your financing settled first. You want to go in knowing how much money you are able to spend. A loan officer at your local bank can help you with this.

2

In order to prevent any surprises, determine how much it's going to cost you to own this car. Not only will you pay the purchase price, but you'll also be responsible for sales tax, registration, licensing fees, and auto insurance. Factor in routine maintenance, like oil changes and new filters. You will periodically have to change tires, bulbs, wiper blades, batteries, and anything else with limited life expectancy. Don't forget the cost of fuel and any possible parking charges.

3

Find a friend or relative to accompany you as you look at the vehicle. Her job is to be your voice of reason. If you dreamed of driving a Mustang as a teenager and you're looking at one now, it may help to have a friendly voice reminding you to use common sense.

4

Take a look at the area you're going into to see the vehicle. If it's a neighborhood known for violence and crime, you may want to reconsider that particular car. There are more cars on the market.

Look for Red Flags

5

Look at the title. If the owner does not have the title, beware. He may not own the car. Don't accept that the title has been "lost" or "stolen." If that were true he would have had the opportunity to request a new title prior to putting the car on the market.

6

Walk away if the title is in someone else's name. The person you're dealing with does not own the vehicle and cannot legally sell it to you.

7

Be wary if the current owner misrepresents the car's condition. If he's lying to you about the things you can see to be false, how many more problems exist beneath the hood?

8

Get a free vehicle history report through websites such as is-it-a-lemon.com. This report will tell you about any reported accidents the car has been involved in.

A Tentative Deal Has Been Struck

9

Take the car to a mechanic you have preselected and have it checked for any problems or potential problems. Use your own mechanic rather than someone the seller recommends.

10

Write up a bill of sale that states make, model, year, vehicle identification number (VIN), and current mileage. Include the sales price, date of sale, buyer and seller's names, and both signatures.

11

Have the seller sign the title over to you. Take it to your state Department of Motor Vehicles (DMV) office to have it registered, get a new title, and pay your sales tax.

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