Can I Be a Co-signer on a Car Loan If I Live in a Different State?

Many banks allow a loan's co-signer to live in a different state, although the purchase process may be prolonged as paperwork is mailed back and forth. Expect to prove your identity to the lender before your approval. Consider the risks associated with co-signing while out of state before you co-sign a loan.

Credit Application Process

If a dealership or lender allows you to co-sign for a borrower, it likely has to prove your identity before approving your loan. Expect to provide your license number and its expiration date. Also, ensure you are easy to locate after providing your credit application, as you may have to answer questions about yourself to prove your identity, which is obtained from past information listed on your credit report. These questions might apply to previous loans, mortgages, addresses or past names you've used that only you would know.

Signing Contracts

Once approved, you must sign bank contracts. If the lender has agreed to accept your application, it will send you the loan contracts. Contracts require original signatures, so emailing or faxing copies is unacceptable. Expect the contracts to be sent through overnight mail with a return envelope. Although you should return the contracts promptly, read over what you're signing beforehand. The contract states the loan's approved rate and payment term and your liability for loan payments and insurance requirements.

Possible Insurance Requirements

Either you or the person you are co-signing for must maintain a full-coverage insurance policy. Beyond the risks of co-signing, you'll also have to make sure that the person you co-sign for keeps an active policy on the car throughout the term of the loan. Treat the purchase as your own, and purchase a gap insurance policy if the borrower did not put down enough money to increase equity in the car. Gap insurance covers the balance of your loan if the driver experiences a total loss, in which case the insurance company will pay the lender for the car's market value. Otherwise, you are liable for the loan amount.

Risks

If the borrower defaults on her loan, late payments are reported on your credit report. If the vehicle is repossessed, your credit score and future lending opportunities are affected, as well. You are liable for the loan's balance if the borrower does not pay. Before signing and returning contracts, find out the bank's contact process for late payments. Not all banks contact both owners. Make sure the bank contacts you so you are aware of any loan issues in the future, as you may not be aware of the borrower's financial situation if you live in a different state.

Read More

What Auto Loans Can I Get Without a Co-signer?

You might be able to acquire an auto loan even as a fresh-faced college graduate with nothing but a credit card with a small limit to your name. If you have bad credit, you may need a co-signer on an auto loan, but you never know until you actually apply. If you do ask someone to co-sign a loan, be sure he understands his legal responsibility for the debt in the event you don't pay.

Identification

You can get any auto loan without a co-signer as long as you meet the approval criteria of the lender. In general, most creditors look at your credit rating from the three major credit reporting bureaus, monthly income and your debt obligations. If you fail to meet a creditor's lending standards, a co-signer might help you gain approval but nothing is guaranteed. The co-signer needs to meet the lending standards of the creditor too. Federal law requires lenders to disclose a co-signer's legal liability for a debt, but you should discuss with the co-signer what happens when you default on the loan anyway, including damage to his credit report if he doesn't fulfill your obligation.

Bad Credit Auto Loans

Some lenders specialize in a subset of the auto loan industry called bad credit auto loans -- most lenders consider anything less than a FICO credit score of 620 to be "bad credit." Providers of bad credit auto loans may not require a co-signer, but they make up for the extra risk with high interest rates and origination fees that might be five times higher than the normal rate of 1 percent of the total loan value, according to Credit Loan.

Considerations

Until you apply for an auto loan, you don't know whether a lender will accept an application without a co-signer. Ideally, you should ensure that you have several months of good payment history on all of your accounts, such as a mortgage and credit cards, and eliminate as much debt as possible before you send in an application. Applying for an auto loan dings your credit score a few points, so you want to avoid submitting many applications over more than a few weeks.

Tip

Run your own credit for free via Annual Credit Report. Auto loan enders tend to focus on the previous 18 to 24 months of payment history, so review your report for potential errors or trouble spots and correct them. If you have a loan in default, remit payment immediately or talk to that lender about getting the account current. When you go auto loan shopping, put in all applications at once. The FICO scoring system counts all auto loan requests within 45 days -- assuming the lenders use the latest algorithm -- as one inquiry, which minimizes the impact on your score.

Read More

How to Refinance a Car Loan With Poor Credit

Refinancing a car loan when you have poor credit can be difficult. Most lenders will not offer a better interest rate for a car if your credit is poor. When you refinance, you may be able to lower your monthly payments by increasing the length of the loan, but that will increase the amount you pay in interest over the length of the loan. If you owe more than the car is worth, then you may have a difficult time refinancing as well.

Instructions

1

Find out the payoff amount for your loan by calling your bank for a quote. Get a quote for at least two weeks out. If you take longer than that, you will end up owing a bit more in interest after your refinance.

2

Check the value of the car using Kelly Blue Book or another car valuing index. If the amount you owe is a lot more than the car is worth, you may need to save up money to pay down the loan so you can refinance. If it is less than $1,000, you may be able to refinance the entire loan.

3

Pull your credit report and take care of any outstanding debts on your credit report. You need to be current on all of your loans before you try to refinance.

4

Contact your credit union and the small banks in the area to set up an appointment for a loan application. Although you have the option of applying online, explaining your situation in person at a smaller bank or credit union may help you get a better rate or terms for your loan.

5

Apply for the loan at several different banks and credit unions. Choose the offer with the best terms. You should look at the interest rate, and the length of the loan and choose the option that offers you the lowest interest and payments you can afford to pay off quickly.

Read More

How to End a Lease on a GM Vehicle

If you currently lease through GMAC or Chase, you may qualify for a pull-ahead program to help you get out of your lease early and penalty-free. If you do not plan on purchasing or leasing a new GM vehicle, you may be subjected to early termination fees in addition to any payments still owed for the remainder of the contract. Know where to find lease-end options and how to go about executing any that might work for you.

Instructions

Pull-Ahead Program

1

Call GMAC or Chase to find out whether any pull-ahead programs exist. A pull-ahead program allows you to end your lease from three months to one year early without penalty in the event that you buy or lease a new GM vehicle and use GMAC or Chase again. You can also contact a GM dealer -- you can find phone numbers and locations from GM's main webpage by inputting your ZIP code.

2

Work with a GM dealer if a pull-ahead program is available to you. Find another vehicle that you want to lease or finance. The sales representative assigned to you will call the bank you lease through to confirm the pull-ahead program, and you can end your lease.

3

Sign new lease or vehicle paperwork to start your new lease or finance. The dealer handles your GMAC or Chase contracts and your motor vehicle paperwork. Fill out your lease return paperwork (ask for a copy before you leave) with your salesperson, who will transfer your plates to your new car before you leave.

Early Termination

4

Call your leasing bank to let it know you want to end your lease. Give the representative your account number and current vehicle mileage. Ask how much is due to end the lease early.

5

Return your GM car to a GM dealership. The bank will pick up the car from the dealership at a later date for inspection. Expect to receive a bill in the mail for your charges and any wear-and-tear items as specified in your leasing contract.

6

Fill out the lease return paperwork with a GM dealer representative. Read it over before signing to make sure the correct odometer reading is reflected and that the amount keys you are returning is correct. Ask for a copy of the return sheet before leaving.

Trade-In

7

Call your leasing bank to find out how much it would cost for a dealer (not you) to buy out your vehicle; ask where you must drop it off if you decide to trade it in. This amount is double-checked by the dealer that you decide to work with. Use the figure as your trade-in payoff amount.

8

Work with a dealer of your choice. You can trade your car in and roll over any additional balance towards a new purchase or lease, or put money down. Work with a salesperson for guidance and to find which new (or used) vehicle works best for you.

9

Purchase your new car, even if you finance or lease again at a different-make dealership. Drop your GM lease off at GM dealership or at the dealership you are trading in at, which you can do if the lease was through Chase and the current dealership also works with Chase.

10

Fill out all lease return paperwork and get a copy of the return information.

Read More

How to Finance a Used Car With a Lien on the Title

Financing a used car from a dealership involves some paperwork, but what about financing a used car from a private dealer that has lien still on the title? Well, that involves a little more paperwork, but it's still possible. If you can pass your bank's credit check and obtain a loan, then the most difficult part involves getting the lien released on the used car.

Instructions

1

Obtain financing. As long as you pass the bank's credit check, you should have no problem getting financing for an auto loan for a private purchase. Banks don't necessarily care whether you're buying from a dealership or private dealer; their main concern is ensuring they're paid back.

2

Ask the seller to call the financial institution that holds the lien. If the car is paid for but the financial institution still holds the title, the owner can request a lien release. Most financial institutions release the loan immediately after the car is paid for, but other institutions require the buyer to contact the institution. If the seller owes money on the car, he can ask permission to transfer the title to you, but most states and financial institutions do not allow a title to be transferred if it has a lien on it.

3

Contact the seller and ask him if you can complete the transaction at the financial intuition that holds the lien. If the buyer still owes money on the car and the financial institution won't allow a title transfer, he can only release the lien by paying off the car loan. He can accomplish this by paying the loan off with his available funds. Alternatively, you two can meet at the institution, complete the sale and he can pay the loan off immediately afterward.

4

Sign the back of the title in the indicated "Buyer" location. The seller should sign in the "Seller" box. Some states require that both signatures be notarized. Make sure the seller fills out any applicable lien information, such as providing the name of the lien holder. Certain states also require the seller to fill out the "Odometer reading" box, provide documentation of an emissions inspection, The Department of Motor Vehicles website has a list of state-specific title transfer guidelines.

5

Visit the local DMV to obtain your state's application for certificate of title. Complete the application.

6

Visit your local tax collector's office or DMV office. Most states designate the transferring of titles and vehicle registration to the local tax collector, but some states may require you to visit the local DMV office instead. The DMV's title transfer guidelines list each state's requirements.

7

Pay the necessary fees. Fees can range from under $20 to over $100, depending on the state you live in. After you the pay the fees, you will receive the new title in your name in the mail.

Read More

How to Stop Paying High Interest on a Car

If you're currently paying high interest on your vehicle's loan, consider refinancing with another lender if your credit has improved. If your credit has not improved, you might need to use a cosigner to refinance. Before applying for another loan, obtain a copy of your credit report to determine which accounts are hindering your credit score. Try to fix your credit before applying for an auto loan. If you've paid your current loan on time, you might have already established better credit.

Instructions

1

Get a copy of your credit report from all three credit bureaus and ensure all payment information is accurate. Correct any errors you find. Locate instructions for correcting inaccurate reporting on the credit bureau websites.

2

Pay off any past due accounts. Contact your creditors, make payments and obtain receipts. Hold on to the receipts to ensure proper updating of your credit history and wait at least 30 days after paying off accounts to apply for a new loan.

3

Call your current lender to obtain your payoff, which is the amount you'll apply for with another lender. Check auto loan interest rates for used cars with local or national lenders. Once you find the best interest rate and loan fees, apply either online, on the phone or in person if the lender is local.

4

Once you are approved, review your interest rate, term, monthly payment and any down payment requirements to determine if the loan is worthwhile. If your interest rate isn't lower, apply to another lender.

5

Sign your loan contracts with your new lender. Supply proof of full coverage insurance to obtain your loan check. Provide your old lender with the payoff check to complete the refinance transaction.

Read More

Can a Dad Cosign a Lease on a Car?

Car leasing is a form of auto financing where the person taking possession of the vehicle arranges to pay monthly payments covering the depreciation of the vehicle. At the end of the lease, the user of the vehicle can either purchase it or return it to the bank or leasing company. Leasing has credit requirements similar to an auto loan, and if a lessor does not qualify, another person, including a parent, can co-sign the lease.

When Needed

A leasing company may ask a person leasing a car to have a co-signer when the lessor does not meet the requirements for the lease. This can be because the potential lessor does not have sufficient credit history, as is often the case with younger people starting out, who may turn to their parents for assistance. Leasing companies may also require a co-signer to approve a lease if the potential lessor has experienced credit problems, such as late payments or repossession. If you have not been employed for long at your current job or are a student, you may also need a co-signer.

Requirements for Co-signer

Since the potential lessor does not meet the requirements of the leasing company, it is up to the co-signer to do so. Leasing a car often requires better credit than purchasing because of the increased risks to the leasing company, and a potential co-signer must meet those requirements. Parents generally have a longer history with credit bureaus than their children, which makes it easier for them to qualify, but they must also have the required minimum credit score. Good performance on other car loans or leases that the parent has been obligated to will also be helpful.

Cautions

If a parent co-signs for you on a car lease, they must be prepared to make the payments if you cannot do so. By co-signing, the other party agrees to pay the lease in full if you default. He may also be liable for any late fees that you incur. With a lease, the co-signer may be responsible for any lease termination charges that you have at the end of the lease. These include excessive damages to the vehicle and required maintenance that you did not perform, as well as excessive mileage over what the lease allows. A co-signer can be subject to collection actions for any charges associated with the lease that the lessor doesn't pay.

Reducing the Risk

Your co-signing parent can reduce their risk with a lease. Notify your parent if you are having problems making the payment on the lease, so that he can make the payment and protect his credit rating. He may also want the leasing company to agree to notify him in writing if you are ever late. Your dad may also be able to have his name removed from the lease if you make the payments as agreed, and you are building your own credit and a good employment history. If this is an option, it would usually be much later in the term of the lease.

Read More

Can I Buy a Car I Leased?

Leasing a car is an attractive option for some because it allows you to get a cheaper monthly payment for the car you want. At the end of the lease term, you may be tempted to buy the car because you have grown attached to it. In this situation, you may have the option of buying the car.

Value

Buying a car after leasing it is not the most economical way to buy a car, but it can give you access to the car you really want. When going this route, you have to make sure that you do not overpay for the car. When you signed the original lease, you may have agreed to pay a certain amount of money for the car if you decide to buy it after the expiration of the lease agreement. If not, you can negotiate the price of the lease with the dealer.

Residual Value

When you lease a car, you essentially pay for the portion of the value of the car that you use. After your lease is over, the remaining value of the car is known as the residual value. The residual value plus an option fee is what you typically have to pay to buy the car after a lease. Although the residual value may be outlined in your lease paperwork, this does not necessarily mean that you have to pay the full amount when buying the car.

Negotiation

When you want to pay less for the car than what the residual value is, you have to negotiate with the dealer. If you know that you are interested in buying the car, do not get too eager to call the dealer and make an offer. Let the dealer contact you toward the end of your lease. If you call the dealer about the car, the sales representative will know that you want the car and will be less willing to negotiate.

Closing the Deal

After you negotiate with the representative from the car dealer, you will have to wait for a decision in most cases. If you lease from the manufacturer, the manufacturer will have to be the one to make the decision as to whether you can buy the car at the price that you have offered. If the manufacturer accepts your offer, you can pay for the car and be on your way. If not, you may have to make another offer or decide to let the dealer keep the car.

Read More

How to Stop Repossession of a Vehicle

Having your vehicle repossessed can be a difficult and embarrassing situation. Once a vehicle has been repossessed, you cannot recover the vehicle until you pay all amounts due to the lender, which will now include the fees to repossess and the costs of storing the vehicle. Stopping a repossession is not easy, but you should attempt to stop the process as soon as you are advised of the pending repossession. Successful negotiation or bankruptcy proceedings are the only two methods to halting a repossession. Hiding the vehicle is a temporary solution and could ultimately result in a contempt charge with the court.

Instructions

Negotiate

1

Resist the urge to hide and pretend the problem does not exist. People who deal with repossessions have years of experience locating people. Hiding is not the answer. You will be found in the long run.

2

Examine your finances closely and determine what you can afford to pay immediately on the vehicle and how much you can apply to the loan over the next month. Be willing to give up luxuries such as eating out, going to the movies or anything else you can give up. Examine any areas you can save money out of your budget to put towards saving your car. Remember your car is what allows you to get places and even get to work. Losing your car to repossession will also damage your credit and you want to avoid this at all costs.

3

Contact the creditor. Go into the call knowing she is going to play hardball. Stress that you want to keep your car and tell her what amount of money you can pay and when you can pay. Explain what caused your situation and how you plan to recover and repay the past due debt.

4

Do not lose your patience and remain calm. If you are unable to negotiate a payment arrangement, end the call and try to call at a later time. Each representative will handle the call differently. If you have been assigned the same representative, try to call again. Your repeated calls may convince her that you are serious about making an arrangement that you will follow through with.

5

Follow through with any agreement you can make. If you fail to follow through, the chances of getting a second chance are very low.

Contact a Bankruptcy Attorney

6

Contact a local bankruptcy attorney to set up an appointment to discuss your options. Bankruptcy proceedings will halt all repossessions and any other debt collection.

7

Gather all of your income information and debt information. The more information you can give the attorney during your consult, the better he can advise you of your options.

8

Meet with the attorney and show him your financial information. Listen to his suggestions on your situation. If you decide to proceed with bankruptcy, refer all creditors to the attorney and he will handle all contact with the creditor and will ensure the repossession process is halted.

Read More

What to Do When You Want to Lease a Car

Advertisements make it possible for shoppers to determine lease costs and requirements. Leasing terms are flexible; you can often change the terms of a lease to match your needs. Before you head out to a dealer to pursue a lease, take your time to research pricing and vehicle options.

Review Leasing Offers

Lease offers and vehicles differ by manufacturer. Review offers for any vehicles that interest you. Go to manufacturer websites and take note of the following lease information: lease term, down payment requirement, monthly payment and mileage allowance. Navigate the manufacturer's website to find local dealers. Visit individual dealer websites to find out if additional offers or discounts exist. Because of the variations of down payment requirements, leasing offers may seem difficult to compare. Every $1,000 put toward a lease results in roughly $30 off of your monthly payment. If you deduct $1,000 from the advertised down payment, add $30 to your monthly payment.

Compare Vehicles

Review the vehicle used for the leasing advertisement. This vehicle may not be the one you want. Usually, a base model is used for advertising purposes, but you can choose to lease different levels with more features if you'd like. Once you determine which vehicle is used for advertisements, use the manufacturer's shopping portion of the website to review the car's specifications and available or standard features. Call a dealer to find out price differences if you choose a different model than the one advertised.

Test Drive the Vehicle and Choose Terms

Once you've narrowed down your options, test drive any vehicles you want to compare. If you want a specific exterior color, interior color or features, let your salesperson know once you arrive. This way, you can test drive the actual vehicle you want to lease if you decide to do so. Once you've found the right vehicle, discuss leasing terms with your salesperson. Ensure that the advertised mileage allowance is manageable; if not, change the allowance. Adjust your down payment amount if needed; you don't have to put down as much money as the lease advertisement suggests.

Finalize the Lease

You can negotiate your monthly payment amount, as pricing is assumed on sticker price without any discounts. Negotiate the price of the leased vehicle the same as you would if purchasing. Fill out a credit application with your salesperson to verify approval. Once you're approved for your lease, you must provide proof of full-coverage insurance from your insurance provider. You may want to check your policy price ahead of time; the price of a collision policy, which is a requirement of leasing, is more expensive than a state required liability policy. Once you're happy with the lease terms and have insurance, you'll sign your leasing contract with the dealer.

Read More

What Can I Do If My Leased Car Was Repossessed?

Unlike a car loan, you never gain title to the car you lease. This has certain advantages for you, the lessee, but it also means that the lessor can enforce specific lease requirements, particularly if your car is repossessed. Repossession of a leased vehicle is different from a repossession under an auto loan.

Auction Notification

If your leased car is repossessed, you may or may not receive notification from the leasing company that your car will be sold at auction. If you are notified and have a chance to place a bid, consider getting the car back. Review your lease agreement to find out what procedures the leasing company must follow to dispose of your car.

Debt Settlement

Under the terms of your lease agreement, you may be liable for the entire balance of the lease even if the vehicle is sold at auction. With an auto loan if your loan balance is $12,000 and it sells at auction for $8,500, you are responsible for the $3,500, which represents the loan deficiency. In the case of a lease, you may be responsible for all of the remaining lease payments, despite your car being sold at auction. Make a settlement offer to the leasing company to reduce your obligation.

State Law

Consumer laws vary from state to state, which means you may have certain rights in the event your leased car is repossessed. According to the Federal Trade Commission, some states have specific procedures in place before repossessing any vehicle, and these steps must be followed precisely. If the leasing company or its agent forcibly took the vehicle back from you, failed to sell it in a commercially reasonable manner, such as a public auction, or waited too long to sue you, then you may have legal recourse. Know your rights by contacting your state's department of consumer affairs or attorney general's office.

Legal Intervention

If you believe that your legal rights have been violated, you can contact an attorney for guidance. Your attorney will determine what rights you have, can negotiate with the leasing company for you and seek compensation if personal items found in your car were not returned to you. If your financial situation is dire, an attorney can advise you about your bankruptcy options. If you cannot afford an attorney, your state may be able to help you through a local office of the Department of Housing and Urban Development or housing authority.

Considerations

Once your leased car has been repossessed, you can do damage control by seeing how that information was reported on your credit reports. Negative information as well as errors can affect your chances of getting new credit or drive up the interest rate on new loans, according to the Federal Citizen Information Center. You can obtain one free copy of your credit reports annually from AnnualCreditReport.com.

Read More

Free Legal Advice for Car Repossessions in Texas

Facing a potential car repossession is never a pleasant prospect, and getting competent advice from someone who understands the law can be difficult, especially if you're just relying on a lay person's opinion. If you need free legal advice in Texas, you may be able to obtain assistance from a variety of sources. However, many free legal services providers only give free assistance to those who meet specific income guidelines, so free legal services may not be available to you.

Car Repossessions

When you buy a car in Texas using an automobile loan, the lender maintains the right to repossess the car if you ever default on your loan. However, the lender has to comply with specific state laws, such the requirement that it indicates its property interest in your car by listing it on the title. If you fall behind on payments, your lender may repossess your car, though you may have legal options available to you.

Legal Aid Organizations

There are a variety of legal aid organizations in Texas that provide free legal assistance for people who cannot otherwise afford an attorney. For example, Texas RioGrande Legal Aid, Inc. provides free legal aid services to residents in 68 Texas counties. The organization provides assistance in a variety of practice areas, including consumer issues that include repossessions and unfair or predatory banking or lending practices.

Attorneys

Some attorneys also offer free legal advice and may be able to help you with your car repossession problem.The State Bar of Texas reports that the organization has adopted policy that establishes an aspirational goal for lawyers in the state of providing 50 hours per year of pro bono services to the public. These State Bar of Texas also reports that most communities in the state have pro bono coordination projects. You can contact your state or local bar association to find the pro bono project in your area.

State Agencies

If you're facing a car repossession and your creditors are harassing you, threatening you or taking potentially illegal actions, can contact the Texas Office of the Attorney General, Consumer Protection Division if you want to file a complaint or suspect a lender is acting illegally.

Texas Office of the Attorney General

Consumer Protection Division

PO Box 12548

Austin, TX 78711-2548

1-800-621-0508

www.oag.state.tx.us

Read More

What Are the Benefits of Refinancing a Car?

Loan refinancing is often associated with home mortgages, but it is also possible to refinance smaller loans, such as car loans. When you refinance a loan, a lender pays off your existing loan and then offers you a new loan in return. Refinancing an auto loan can have several notable benefits.

Monthly Payments

One of the biggest benefits of refinancing an auto loan is the potential to reduce monthly payments on the loan. When you refinance a loan, the terms of the loan can change, meaning you can get a different interest rate. If interest rates have fallen since you first took out the loan, refinancing will likely reduce the interest rate on the loan, which can lower payments. This can be a significant benefit if your income situation has changed and you are in jeopardy of missing payments. If you miss a payment, it can have a negative impact on your credit score, so refinancing can be a way to protect your credit score. Successfully paying off your refinanced loan may help boost your credit score.

Loan Duration

Refinancing can alter the duration of an auto loan. For instance, if your original loan was set to be paid off after three years, and you paid on it for two years, your new loan could also be set to three years, essentially extending the loan for two more years. Extending a loan can greatly reduce the amount of money owed each month, although it will mean that you will be paying interest over a longer period of time. If the new loan is set to be paid off by the same time as the original loan, and you are able to get a lower interest rate, refinancing will decrease the total amount of interest you will pay.

Fixed Versus Variable Interest Rates

Another potential benefit of refinancing an auto loan is that you may have the opportunity to switch from a variable interest rate to a fixed rate or vice versa. Fixed interest-rate loans stay the same regardless of changes in interest rates in the overall economy. By changing to a fixed-rate loan, you can protect against interest-rate hikes that may occur under a variable-rate loan. On the other hand, if interest rates are falling, a fixed rate may keep you paying more interest than you have to. A variable-rate loan will typically adjust downward if interest rates in the economy fall.

Read More

How Much Can I Save by Making Extra Car Payments?

According to the National Automobile Dealers Association, as of September of 2010, the average new car costs $29,428 and the average used car costs $16,321. Either of these two prices represent an investment larger than the vast majority of American households are willing or able to make as a one-time purchase. Because of this, most car buyers choose to borrow money when they buy or lease a vehicle.

How Financing Works

Financing works on a very simple principle: the lender agrees to give the borrower a lump sum of money up front in exchange for the borrower's promise to pay the money back over time. Lenders charge an interest rate, which is computed as a percentage of the amount of the loan, which compensates them for the use of their money. Typically speaking, the longer that a loan is extant, the more interest that the buyer will pay. Making additional payments typically has the effect of shortening the loan, which reduces the amount of interest that will be paid.

Simple Interest vs. Rule of 78

Most car loans are calculated on the basis of "simple interest." This means that every month's payment includes that month's interest on the total amount due and an additional sum applied to the principal of the loan. Rule of 78 or "pre-computed interest" loans are set up in which the borrower pays all of the interest up front, then pays the principal. With these relatively rare loans, since the interest is prepaid, paying them off early by making extra payments will result in no savings.

Understanding the Cost of a Loan

A $28,000 simple interest car loan with a five-year term and a typical interest rate of 7 percent carries a monthly payment of $554.43. This payment consists of $163.33 in interest, which represents 1/12th of 7 percent of the loan's balance, and then a payment of $391.10 in principal. In the next month, because the loan balance is almost $400 less, the interest payment is also less, allowing the borrower to pay back a little bit more principal. This continues until the final payment on the loan which consists of $551.22 of principal and $3.22 of interest. Over the five-year period, this loan would cost a total of $5,266.01 in interest.

Making Extra Payments

The amount that you would save by making extra payments varies depending on how much extra you pay and how often you do it. Taking the loan above as an example, if you were to make an extra payment every five months, it would roughly be the equivalent of paying off the loan in four years. This would save approximately $1,082.00 in interest. Another example would be paying $600 per month instead of $551.22, which is the rough equivalent of making one extra payment out of every 10. Doing this would pay the loan off in five years and seven months and result in saving $486.53 in interest.

Low/No Interest Car Loans

If you have a car loan with little or no interest, such as the promotional loans with 0 percent APR or 1.9 percent APR, paying the loan off early is usually a poor idea. The reason for this is that your money may be making more in the bank than you are paying in interest. Using savings that are in a money market account paying you 1 percent to pay off a car loan that costs you 8 percent is a wise thing to do. Pulling money out of a certificate of deposit account that is paying you 2 percent to pay off an interest-free car loan, though, will cost you money.

Read More

What Is the Loan Value on My Car?

Buying a car is an involved process that takes on an added dimension when you choose to finance rather than pay cash. Financing a car means you'll need to go through the process of securing a loan. Some aspects of auto loans are straightforward, such as the understanding that a lower interest rate means it will cost less to borrow the money. But other aspects, including loan value and loan-to-value ratio, are not always as clear.

Value for Lenders

Lenders use loan value as a measure of how much they are willing to offer a borrower in an auto financing arrangement. Loan value for lenders takes the borrower's credit history and down payment into account, along with the market value of the car. Each lender has its own method for determining loan value, but in every case the loan value is a balance between the risks of lending and the profits that lenders make by charging interest. Lenders use loan value metrics to determine the dollar amount of a loan, but loan value is not the same as the loan amount.

Value for Borrowers

When you take out a loan to buy a new or used car, the initial value of the loan is the amount you borrow. For example, if you purchase a new car for $25,000 and make a $5,000 down payment, your loan value will be $20,000. This is the amount you would need to pay the lender immediately to eliminate your loan.

Over time the value of your auto loan will change. This happens when the lender charges you interest and when you make payments to reduce the amount you owe. If you make larger payments, your loan value will decrease more quickly than if you make lower monthly payments. Missing a payment means your loan value will increase from one month to the next since you will still incur a finance charge and possibly a late payment fee.

Loan-to-Value Ratio

Another important number to look at when you finance a car is the changing loan-to-value ration. This represents the value of your loan as a proportion of the value of the vehicle itself. The value of your car will change as it depreciates and if it experiences any accidents or natural wear and tear. Some care depreciate more quickly than others based on desirability and supply in the resale market.

If your $25,000 car with a $20,000 loan value depreciates to a market value of $15,000 one year later, and you still owe $15,000 to the lender, the loan-to-value ratio is 1:1. However, if the car depreciates to just $13,000 while you still owe $15,000, you will have a loan-to-value ratio of 1.15:1. Any ratio above 1:1 means you owe more than your car is worth.

Considerations

A loan-to-value ratio over 1:1 can be a problem in some situations. Your auto insurance only covers your car for its market value, not its loan value. This means that is your car is stolen or involved in an accident such that the cost of repairs exceeds its market value, you will only receive a check for the car's market value from your insurance company. A $15,000 check won't be enough to pay off the $20,000 you owe, and you'll be responsible for the remaining $5,000 yourself. Gap insurance covers the difference between loan value and market value while your car is new and you still owe the majority of the initial loan value. A larger down payment will also help you avoid owing additional money by reducing your loan value to a level below your car's future market value.

Read More

Can You Trade in a Vehicle That Is Not Paid Off?

It is possible to trade in a car that still has an outstanding loan balance. Car dealerships have a procedure for handling trade-in vehicles not paid off. You should have an understanding how the current loan on your trade-in will affect your new car deal and what to expect from the dealership.

Trade Value Vs. Loan Balance

The biggest factor to consider when you want to trade in a car with a loan is what is the relationship between the car's trade-in value and the loan balance. If the car is worth $15,000 and the loan is at $10,000, there is $5,000 in equity in the trade that can be applied to the purchase of the new car. If those numbers are reversed, the owner is "upside down" on her trade-in and may have to put in extra money as a down payment to make up for the negative equity.

Dealership Process

When you trade in a car to purchase the new one, the dealership will pay off the loan on the trade-in. The new loan amount for the new car is calculated as the price of the new car plus any taxes and fees, minus the trade-in appraised value, minus any cash down payment, plus the loan amount on the trade-in that will be paid off. In effect, the loan on the old car is rolled into the new car loan.

Considerations

Before trading in a car with a loan, it is a good idea to see if there is equity in the trade-in car. The average trade-in value can be found on websites that include Kelley Blue Book or Edmunds. Call the lender for the car loan and get the current loan balance. The results will tell you if you have equity or are upside down. If the car was purchased with little down payment and within the last couple of years, the car is most likely upside down. Cars depreciate faster than car loans get paid off. If there is two years or less remaining on the car loan, it is probable the trade has equity.

Negotiating

When negotiating with the dealer, the important considerations are the price of the new car, the amount allowed for the trade-in and the interest rate on the new car loan. The rest of the numbers, including the trade loan payoff, will work themselves out. One technique is to negotiate on the difference in price between the new and old cars. Keep an eye on this difference and do not let the dealership change one to make up for good negotiating on the other

Read More

How do I Calculate Car Payment Auto Loans?

If you plan to buy a car, you might need to take out an auto loan to finance the vehicle. According to Bankrate.com, your car loan payment shouldn't exceed 15 to 20 percent of your monthly budget. To determine if you can afford a car, you need to know the amount of your monthly payment. To get figure this, you need the amount borrowed, the loan term and the interest rate.

Instructions

1

Divide your annual interest rate by 1200. This is the monthly interest rate of your car loan. For example, if your annual interest rate equals 8.58 percent, you would divide 8.58 percent by 1200 to get 0.00715.

2

Multiply the monthly interest rate expressed as a decimal by the amount borrowed for the car loan. For example, if you borrowed $19,000, you would multiply $19,000 by 0.00715 to get $135.85.

3

Determine the number of months in the term of the auto loan by multiplying the number of years by 12. For example, if you will take 3.5 years to pay off the loan, multiply 3.5 by 12 to get 42 months.

4

Add 1 to the monthly interest rate. In this example, you would compute 1 plus 0.00715 to get 1.00715.

5

Use a calculator to raise the result from Step 4 to the negative Mth power, with M equaling the number of months in the term of the car loan. In this example, you would raise 1.00715 to the negative 42nd power to get 0.741387745.

6

Compute 1 minus the result from Step 5. Continuing the example, you would subtract 0.741387745 from 1 to get 0.258612255.

7

Divide the result from Step 2 by the result from Step 6. The answer equals the monthly car payment. Finishing the example, you would divide $135.85 by 0.258612255 to find the car payment to be $525.30.

Read More

How to Trade in Your Car Without Paying Anything

There are many different reasons to trade in your current car for a replacement car. The big question: Is there an outstanding loan on your current car? You can work with a reputable dealership and your lender to trade in your car without paying anything.

Instructions

1

Call your bank or auto loan company. Ask them if you're allowed to do an auto-payoff of your loan through a car dealership. Ensure that there are no early pay-off penalties. If they say it's acceptable for the dealer to pay off, proceed to the next step.

2

Write a list of features, accessories and items you'd like in a replacement car. For example: air conditioning, power steering, anti-lock brakes and so forth. This will let you know what type of car you'll be seeking.

3

Visit several auto dealerships in your area with your wish list. Make sure the dealership will do a loan payoff as part of your trade-in for the replacement car you select.

4

Obtain financing with the dealership after you select the car you want. Get in writing from the dealership that they will do the loan payoff in a timely manner.

Read More

Can I Use a Regular Loan to Buy a Car?

You can use a personal loan to buy a car, but typically an unsecured personal loan does not offer an interest rate as low as what you could get with a secured auto loan. Car loans are secured by the vehicle, as the lender takes a lien against the vehicle. This means if you default on the loan, the lender can repossess the car as collateral.

Car Loan Basics

Car loans are financing used to purchase a vehicle. Vehicles are one of the most valuable assets people typically buy. Similar to purchasing a home, when you get financing for a car purchase, you award the lender conditional ownership in exchange for necessary purchase funds. Because they are secured, auto loan rates are typically lower than most other loans you get besides home loans. Thus, using a personal loan to buy a car makes little sense if the rate is a few percentage points higher.

Another Option

While using regular loans to buy cars may not make sense, using a home equity loan to buy a car sometimes does. A home equity loan, or line of credit, is secured by your property, which means interest rates are typically much lower than rates for unsecured loans. Home equity financing is often less expensive than auto loans. If you have access to equity, you might benefit by comparing the rates available with home equity and auto financing. The risk of home equity financing is that you are taking on more risk of loss for your home.

Shopping for Car Loans

If you are going to shop for a regular auto loan, shop around before going to a dealership to buy a car. Dealers notoriously work with lenders and try to get you into financing to make an immediate sale. Eric Peter of AOL Autos advises all car buyers to compare loan options before going to a dealer. Sometimes, your home lender or other banks you have relationships with offer good rates based on your existing accounts with them. Lining up financing in advance helps you avoid some of the pressure tactics commonly used by car dealership finance managers.

Other Considerations

Another reason to consider your loan options, whether personal, equity or auto, in advance is to understand all of the costs associated with buying a car. Consumers who wait until they pick out a car to sit down with a finance manager are often surprised to learn about all the extra costs of buying a car. Many states have sales tax on cars. You also have to pay for titling and registration. Plus, some business finance managers try to add on expensive gap insurance premiums and attempt to sell you extended warranties. Reviewing these options and costs up front helps you avoid surprise after you have committed to a car purchase.

Read More

How to Get Approval for an Auto Loan Extension

If you want to extend the term of your auto loan, you must ask your lender to modify your loan. Otherwise, applying for a completely different loan than the one you already have is known as refinancing. Many lenders are willing to work with borrowers to extend an auto loan because of financial hardship, but may restrict your options. Extending your loan term may also increase your interest rate and your overall loan payback amount. While you'll still obtain a lower monthly payment, you may want to plan on refinancing in the future if your rate increases significantly.

Instructions

1

Call your auto loan provider to speak to a bank representative. If you're behind on your car payments, you'll likely need to speak to your lender's retention or collection's department.

2

Ask your lender if you can modify your current car loan and extend your term. Your lender may choose to do this only under circumstances of financial hardship; many lenders offer loan extensions to distressed borrowers. Discuss your situation in detail to find out if you qualify.

3

Make a note of any documents your lenders asks you to provide, such as an unemployment statement or proof of disability. Give your credit information if asked, as your lender may require you to resubmit a credit application. Your lender may also ask you to submit additional forms before approving your loan application.

4

Bring your forms to your lender or email or fax the forms promptly if your lender is not local. Once your lender receives your paperwork, it will make its decision to extend your loan term. If your lender agrees to a loan extension, discuss your new monthly payment amount, term and interest rate.

5

Sign your new loan contract. Read the contract over thoroughly to ensure your loan terms are as you previously discussed. Return the contract promptly if your lender isn't local.

Read More

Can You Transfer a Car Loan to Someone?

It is not possible to transfer a car loan from person to another by any official means. When a borrower is given a loan for an automobile, that loan is intended for them and them alone, and they are solely responsible for paying it back unless they had someone co-sign on the loan for them. However, when a person is stuck with a car loan that they cannot afford, there are some alternatives to transferring the loan.

Why You Cannot Transfer a Car Loan

The reason it is not technically possible to transfer an auto loan to another person is because your loan was given to you based on your credit history and financial standing. If you were to transfer the loan to another person, the lender runs the risk of that person not being able to fulfill the loan agreement. The terms of the loan agreement would also no longer be specific to the borrower it was intended for.

Swap Your Loan

Although it is technically impossible to transfer your loan to another person, you can unofficially transfer your loan to someone else by performing what's called "swapping a loan." Swapping a loan is when you have an interested buyer take out a loan for the remainder amount of your loan, hand the money over to you and then use that money to pay off your loan. It is essentially the same as selling your car to someone who already has the cash to buy it for the full amount or remainder of the loan.

Transfer Lenders

You can transfer your loan to a different lender. Changing lenders for a better interest rate will make your loan more affordable. However, in most cases, your current lender will charge you penalty fee for doing this. Read your loan agreement to find out the penalties for transferring to another lender before you decide to do this.

Hire Purchase Agreement

Car loans for vehicles purchased from a car dealer often include a hire purchase agreement. A hire purchase agreement allows you to return your vehicle without being held to any future payments after you have paid back 50 percent of your loan. Unfortunately, you will lose your past payments by doing this and may have to pay for any repairs the car needs.

Two-Week Grace Period

As long as you did not sign your loan agreement on the dealer's premises, you are typically given a two-week period to consider the loan. During this grace period, you can back out of your loan without incurring any penalties.

Read More

How Much Negative Equity Can Be Financed in a Used Car?

The amount of negative equity a borrower can roll over into a used car loan differs by individual credit history and lender-determined vehicle value. Some borrowers might be able to roll over thousands of dollars into a used car loan, while others might have trouble financing the cost of a used car without providing a down payment to increase vehicle equity.

Credit

Your credit history sets the terms of your loan. Excellent credit borrowers might obtain an approval for up to 120 percent of a vehicle's value, while poor credit applicants might obtain an approval for as little as 60 percent of a vehicle's value. This percentage is called a loan-to-value ratio. Your potential lender reviews your credit history to determine your lending risk. The higher your credit risk, the less you'll be able to borrow. A history of late payments, unpaid accounts, judgments or tax liens significantly decreases your chances of financing negative equity.

Car Pricing

The price you pay for a used car also affects your loan-to-value ratio. If you purchase a $15,000 vehicle with an $18,000 lending value, you might be able to roll over $3,000 in negative equity to your new loan if you secured a loan with a 100 percent loan-to-value ratio. If the same vehicle cost $19,000, you'd have to provide a down payment of $1,000 to meet the lender's loan requirement of $18,000, or 100 percent of the lender-determined value.

Solutions

Shop for a car with a higher lending value than sales price. Some vehicles, such as rental cars, usually have a high lending value and reduced price. Large used car dealers often sell rental cars. Consider working with a dealer to carry over negative equity if you can't obtain an approval on your own. A knowledgeable dealer can show you vehicles in its inventory that have a higher lending value than sales price. A dealer who uses outside financing might also match you with a lender who offers a higher loan-to-value ratio based on your individual credit.

Warning

The excess money you finance into a new loan doesn't disappear. If you can't provide a down payment to cover your old vehicle's excess balance, your negative equity will become an issue again when you try to sell or trade-in your vehicle. Don't extend your loan term to decrease your monthly payment, as you'll end up paying more in interest. If you can't afford the payment of a 60-month loan, consider paying down your current loan to minimize negative equity or consider saving money for a down payment instead.

Read More

Do You Need Comprehensive and Collision When Financing a Used Vehicle?

In most cases, when you finance the purchase of a used vehicle, you are required by the lender to obtain full coverage auto insurance, according to CarInsurance.com. However, when you purchase a vehicle for cash or use a non-auto loan for financing, you are only required to meet state insurance requirements.

Basics

Auto insurance is generally categorized into liability, collision and comprehensive coverage. Liability coverage is required in most states, indicates CarInsurance.com, as it covers your financial obligation when you cause injury or damage to another in an accident. While states do not usually require full coverage, many car owners buy it. Collision coverage provides damage protection when your car is damaged in an accident. Comprehensive covers most other causes of vehicle damage, including storm damage and animal impact.

Lender Logic

Lenders not only finance car loan purchases, they view them as investments. They provide principal loan amounts to earn income through interest payments. The lender wants to protect its investment in the same way a mortgage lender does. If your vehicle is damaged and you do not have comprehensive or collision coverage, the repairs may exceed your capacity to pay. This would potentially cause you to default on your loan. With insurance protection, the lender has more security that the damage will be repaired and the car will retain its value.

Considerations

Even when not required, as with a used car purchase that was not financed, it may make sense to get full coverage. This is especially true when you have a newer vehicle or one that is more expensive. Imagine buying a car for cash with $5,000 to $10,000 and then having it totaled in a one-car accident. Without insurance, you would have to salvage the car for a relatively small price compared to its original value. When the value of your car is much lower, which is more likely if you are not financing the purchase, getting liability may be enough.

Saving on Premiums

Just because lenders require that you get full coverage does not mean that you have to buy expensive coverage. If you are a good driver, your car has advanced safety features and you take advantage of common auto discount opportunities, you can obtain reasonable protection. Many companies offer discounts if you combine your auto and home insurance policies, according to the Federal Consumer Information Center. You also ask for higher deductible of $500 or $1,000 to lower your monthly premiums, if allowed under the terms of your loan agreement.

Read More

How Long After a Car Is Repossessed Must a Bank Sell it?

After repossession, your lender will likely resell the vehicle, but is not required to do so. According to the Federal Trade Commission, a lender who seizes a vehicle may have to notify you of where it intends to resell your vehicle and when. If the bank promises to sell your vehicle during a certain time frame after repossession, you'll find that information stated in your loan contract.

Before the Sale

Before your bank resells the repossessed vehicle, you might have an opportunity to reclaim it. You'll receive a letter from your lender that states the amount due to reclaim the vehicle. You may have to pay your past due amount, including late charges and repossession costs to reclaim ownership. Or, the bank may require that you pay off the entire loan balance and repossession fees. The letter from your lender will state the date and location of the vehicle's intended sale.

Private Sales

If your bank decides to sell the vehicle privately, it will advertise the vehicle for sale. As with most private sales, the time period it takes to find a buyer varies. Similar to dealerships, the bank will list the vehicle for sale online or through classified advertisements and meet with interested buyers. Your bank is likely to ask for retail value for the vehicle, negotiate pricing and complete the sale, which can take time. Then, you'll receive a bill for the amount due on your loan, if any.

Auction Sales

Many banks resell vehicles at auction for wholesale price. While many auction cars sell the same day, an instant sale isn't guaranteed. Your bank will notify you of the date and location of the auction, but it's unlikely you can attend it. Most auctions are not open to the public. If the vehicle isn't sold at auction that day, the bank will attempt to sell it again on the next scheduled auction date. Many auctions are held weekly, but some are held monthly.

After the Sale

If you don't reclaim your vehicle within the specified time period and the car is resold privately or at auction, you'll receive another letter from the bank stating the amount owed on your auto loan. The bank will use the vehicle's sales amount to satisfy your auto loan and pay repossession fees. If the balance due on your loan is less than the vehicle's sales price, you may receive a check for the remaining profit. If you owe more than the vehicle's sales price, you must make arrangements to pay the rest of the loan deficiency to avoid a potential lawsuit.

Read More

Why Should I Finance a Car Instead of Leasing?

Although the monthly cost to finance a car is typically higher than the monthly cost to lease the same car, you will end up with many benefits by choosing to finance the car. According to cars.com, the fact that only 16 percent of retail car sales were leases in 2009 should tip you off to the fact that financing is usually the better choice.

End to Monthly Payments

After you pay off a car loan, you get to drive the car for as long as you like with no monthly payments. For example, if you buy a car with a 48-month loan, you will own the car after four years and can realistically expect to drive it for another four to six years before it starts to develop major mechanical problems. In contrast, after your lease is over, you have to either sign a new lease or purchase a vehicle, both of which will lock you into making monthly payments again.

No Mileage Worries

Leases include an annual mileage cap, and if the car has more miles than this when the lease ends, you will pay for it. The cost is anywhere between 10 and 25 cents per mile, according to the Federal Trade Commission. If you signed a lease for 10,000 miles per year and drove 15,000 miles per year for each of the three years, you will be hit with a charge of $1,500 to $3,750 at the end of the lease, depending on the per-mile cost stipulated in the lease.

Cost of Damage

When you return a leased car, you will have to pay for any damage the car has beyond normal wear and tear. The leasing company determines what is considered normal wear. Often the stain on the upholstery from when someone spilled a drink in the car or the ding that appeared on the door while you were in a parking lot do not count as normal wear. Financing a car frees you to not worry about damages because the car belongs to you, not the leasing company.

When to Lease

There are a few circumstances in which leasing a car will be more advantageous than financing a car. If you have money to spare, a lease is more convenient than owning a car because the leasing company typically takes care of all the maintenance, and you do not need to worry about selling the car when you are done with it. In addition, if your job requires that you drive a new luxury car, leasing can be a wise choice because it is easy to trade for a new car every few years, and lease payments are smaller than loan payments for the equivalent car.

Read More

How to Get Rid of a Car That Money Is Still Owed On

Selling a car that you own outright is a fairly straightforward process in which you're able to pocket the profit. Selling a car with an outstanding balance is more complicated, because the loan must be paid off and the car title must be obtained from the lender. But it can be done.

Instructions

1

Find out how much you owe on the auto loan. Contact your lender and request the payoff amount of your vehicle loan.

2

Refer to a reputable source, such as Kelley Blue Book, to determine the fair market value of your vehicle. This helps you determine a reasonable asking price for your automobile.

3

Establish an asking price for your car. Choose a price that's high enough to pay off your auto loan balance to avoid paying a deficiency balance out-of-pocket. List your car for sale in classified ads or an appropriate online website.

4

Accept payment and begin the transfer of ownership. Once you receive the buyer's payment for the car, complete a bill of sale and accompany the buyer to the Department of Motor Vehicles (DMV), where the buyer can obtain a temporary operating permit based on the bill of sale. The buyer must trust that you will pay off the loan and have the lien removed. Take the proceeds from the sale and pay off the original loan balance.

5

Transfer ownership of the car. Once your lender mails you the car title, sign the document to transfer ownership to the buyer. The buyer is responsible for submitting the title to DMV to complete the process.

Read More

How to Calculate Lease Payments on Auto Loans

Figuring a lease payment is slightly different than figuring a monthly car payment, where you'll own the car at the end of the loan. In a lease situation, the dealer provides something called a "residual value in the contract." The residual value is the amount of money that the car will be worth at the end of the loan. When calculating lease payments, you essentially substitute the residual value on the lease of a car where you'd substitute a zero balance on the purchase of an automobile.

Instructions

1

Write down a two-part equation that is the basis of your lease payment. The first part of the equation is the depreciation fee, which is the amount of money the automobile depreciates over the length of your lease, based on the amount of miles you drive. The miles are usually capped and anything over the cap results in a per-mile fee. The second part of the equation is the finance fee, or the interest rate you'll pay on the loan. When those two items are added, you will find the lease payment per month.

Depreciation Fee + Finance Fee=Lease Payment

2

Calculate the depreciation fee. The depreciation fee is figured with the following equation:

Purchase Price - Residual Value / Term of the Lease.

For example, if a car worth $35,000 will have a residual vale of $25,000 at the end of a 36 month lease, the equation becomes:

($35,000 - $25,000) / 36 = $277.78 per month.

3

Find the money factor to get the interest rate you're being charged. You must ask the dealer what the money factor is for the loan. The money factor is the number automobile sellers calculate interest and is given in decimal form. For example, the money factor might be .00375.

4

Calculate the finance fee. Because you are driving the vehicle while the seller still technically owns it, the finance fee is calculated by adding the net cost of the car plus the residual value. The net car cost is taken after any down-payments or trade-ins have been made on the car. For example , if you do not make a down payment and the money factor is .00375, the finance fee equation becomes ($35,000 + $25,000) x .00375] = 225

(Net Cost + Residual Value) x Money Factor = Finance Fee

5

Add the finance fee to the depreciation fee to get your monthly lease payment. In the above example, the monthly lease payment would be $502.78:

$277.78 + $225.00 = 502.78.

Read More

How to Extend my Car Payment

Extending your car payment is a step to consider before defaulting on a car loan. An extension will not hurt your credit report, whereas defaulting on the loan or just not paying it will cause great harm to your credit. It is difficult to determine if an extension will allow you to still make a monthly payment without knowing the cost of the monthly car payment and the amount you can comfortably afford. An extension even temporarily is a good-faith effort to show your lender that you are willing to make every effort to make good on your loan commitment.

Purchasing a vehicle that is practical and cost effective is the first step in ensuring that its affordable, especially if you come upon hard times during the course of your car loan payback. Once you have determined with certainty that you cant pay your car payment, you should take immediate steps to find the best alternative for payback arrangements.

Instructions

1

Work out a monthly budget weighing your income and expenses. Determine how much you can realistically afford for your car payment each month and know how much you currently pay.

2

Review your car loan statement or coupon book for the contact phone number of your lender and your loan account number. Keep a notebook and pen handy to write down important information obtained during the call.

3

Notify your car loan lending institution and inform them of your difficulty to make payment. Request an extension of your payment due for the period of time you expect the financial difficulty to last.

4

Ask your lender for short-term suggestions and available options to deal with financial difficulties if you are not approved for a loan extension. Take notes on their suggestions should you need to review at a later time. Research your options for refinancing. Refinancing would allow you to extend your loan for a longer period of time. This would reduce the payments but probably result in you paying more for the car in the long run.

5

If you are leasing your vehicle, you'll need to talk to the dealer about extending your lease and request an estimate for the extension. Compare the lease estimate to the cost of leasing a different, less expensive car, and decide which if either is affordable for you.

6

Request that any arrangement made regarding an extension be sent to you in writing.

Read More