Lessor vs. Lessee of a Vehicle

A vehicle lessor is a dealership or leasing company that leases its vehicles to individual lessees. State laws establish the contractual requirements that lessors must comply with when leasing their vehicles to lessees. Vehicle lessors must also comply with federal laws, including federal loan disclosure laws and the Federal Consumer Leasing Act. The Federal Trade Commission administers the federal consumer protection laws, while state regulatory agencies administer state laws.

Consumer Leasing Act

According to the federal Consumer Leasing Act, vehicle lessors who lease automobiles to consumers for personal use are required to disclose their leasing terms in their advertisements and in their written contracts. Vehicle lessors must provide consumers with disclosures of their capitalized loan costs and their financing rates. Attorney Generals in most states protect consumers against deceptive auto leasing practices. To further protect residents, state laws strengthen the existing federal consumer protection statutes and impose additional penalties on leasing companies who violate the federal or state consumer protection laws.

Types of Leases

The two main types of lease agreements are open-end leases and closed-end leases. Lessees subject to closed-end leases can return their vehicles and are not responsible for other fees, except for excessive mileage or usage fees. Lessees subject to open-end leases pay diminution fees, or the difference between their vehicle's fair market value at the beginning of their leases and end of their leases. Under both types of leases, lessees also pay inception fees, or down payments, acquisition expenses and tag and title fees. Lessors may also charge early termination fees if lessees prematurely end their vehicle leases.

Mandatory Federal Disclosures

Federal law requires lessors to use written leases when leasing their vehicles. Their written leases must include mandatory disclosures. Vehicle lessors must state whether they are offering vehicle warranties, require routine maintenance and whether lessees are responsible for regular maintenance or repairs. Lessors must also include any insurance requirements and whether lessees are responsible for insuring their vehicles.

Regulation M

The Federal Reserve Board requires lessors to comply with Regulation M. The regulation requires lessors to include a written disclosure of their financial lease terms by showing annual compound interest charges and annual percentage rates. Regulation M does not apply to lessors who lease vehicles valued at more than $25,000.

State Laws

Many states have passed additional statutes requiring lessors to provide additional disclosures. For example, the New Jersey Consumer Protection Leasing Act gives consumers a 24-hour right of rescission, or "cooling-off" period. Under this act, consumers can rescind their agreements within 24 hours without paying early termination fees.

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How Much Money Does a Dealer Make on Financing a Car Loan?

Dealers often make less profit in car sales because of the widespread availability of invoice pricing and incentive information, but they make up for some of this by getting money from things, such as financing, insurance and warranties, according to Cars.com writer Joe Wiesenfelder. The amount a dealer makes on car loans depends on various factors.

Process

Most dealers do not directly finance their customers' vehicles. They act as middlemen, shopping around with various banks and finance companies, communicating the results and handling the loan paperwork. This process allows them to add additional points to the interest rate. The dealer can retain the entire additional amount as profit or share it with the lender, and the law does not require disclosure to you. There is no standard added amount, but "The Wall Street Journal's" Smart Money column explains that it is common to add two percentage points.

Prevention

Save money by arranging your own financing before you start car shopping. Start with the bank or credit union where you currently have your accounts and check out loan shopping websites. You save money with a pre-approved loan direct from the lender because no one is boosting the interest rate to get extra profit.

Warning

Some car dealers are especially likely to wring profit out of vehicle buyers with bad credit because they have fewer options. These sellers know you cannot readily get a loan on your own, which makes you more likely to accept the financing they offer, even if the rate is very high. "The Wall Street Journal" Smart Money column warns that some even claim the lender requires you to buy an extended service plan, even though that is untrue. You may be able to get pre-approved and avoid the hassle if you save up a large down payment and select a modestly-priced car. Otherwise, consider asking a family member or friend to co-sign the loan. You qualify based on the other person's good credit record, but he is equally responsible for the loan, so you destroy his credit rating if you default.

Considerations

Bad credit puts you in a difficult position for getting car loans, but you can offset some of this by repairing your credit before car shopping, according to Edmunds editor Warren Clarke. Order free credit report copies from TransUnion, Equifax and Experian through AnnualCreditReport.com, which provides one free copy from each bureau annually. Find mistakes that hurt your credit score, such as incorrectly dated delinquencies or inflated balances, and dispute them. According to the Federal Trade Commission, credit bureaus are obligated to research your claims and remove mistakes within a month. Start the loan-hunting process once the bad items are erased from your credit reports.

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Financial Responsibility & Autos

Buying a car is one of the biggest investments most people will make in life. Financial responsibility with regard to cars includes a number of considerations. Much of your financial responsibility with car purchases centers on the actual purchase process and often associated financing, along with buying and maintaining insurance. Well-planned purchases can save you a lot of money and hassle with cars.

Financing Basics

For many people, home loans and car loans are a common way of life. When buying a car, you can usually finance a loan through the dealership, or by obtaining financing ahead of your car purchase. While dealership financing is convenient, and often produces a reasonable loan rate and terms, shopping around or arranging financing ahead of time may offer better opportunities. Car loans are usually paid off in periods of time ranging from 36 to 72 months through monthly payments of principal and interest.

Additional Insights

Home equity loans are lines of credit allow you to tap into your home's financing to borrow funds. Since your loan is secured by your real estate property, you usually get a much better rate than you would from an unsecured loan. Independent lenders may also make sense if you already have financial relationships with them. Paying off extra principal each month can expedite the repayment of your loan and save you on interest.

Insurance Basics

Liability car insurance is required in some form in 48 states, as of April 2010, according to the "Truth About Insurance Website." Wisconsin and New Hampshire are noted as not having liability insurance requirements, but drivers are required to show the ability to pay for damages to a third party in an at-fault accident. Liability pays benefits for bodily injury and property damage to another party. Along with the financial responsibility of carrying liability insurance, you may also consider comprehensive and collision benefits. Collision coverage pays benefits when you are in an accident; comprehensive covers other common causes of damage.

Insurance Breaks

One of the best ways to save money on insurance is to drive responsibility and to prove your worth. Many insurance providers offer discounts for good grades and advanced safety features, along with a proven history of safe driving. Defensive driving and avoiding accidents can save you extensive increases to your premiums and insurance costs. Making on-time payments to your carrier avoids late payment penalties. Additionally, by paying in full (every six or twelve month), you can usually get a price discount.

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How to Calculate the Car Payment with a Trade-In Vehicle

When you are purchasing a new car, you can greatly reduce the amount of your monthly payments by trading in another car. The amount you get for your trade-in vehicle depends on the value of that car. You can calculate the amount of your monthly car payments with a trade-in vehicle by making a few decisions about your loan length and what type of car you are purchasing.

Instructions

1

Determine the amount your new car costs, including taxes and fees, the amount you are granted for your trade-in vehicle, the interest rate of your loan per month and the number of monthly payments you want to make. Your dealership or bank can tell you the cost of your new car and your interest rate per month. You can determine your monthly interest rate by taking your annual interest rate and dividing that number by 12 months. Typical car loans last from 36 to 60 months, but there are exceptions.

2

Subtract the amount you will receive for the trade-in vehicle from the amount you owe for the new car, including taxes and fees. This is the total amount of the principal of your car loan.

3

Calculate your monthly car payment with a trade-in vehicle using the Amortization Calculation Formula (see Resources). You should use the formula under the "Calculating the Payment Amount Per Period" section of this web page, where the principal P is the total amount from Step 2, interest rate R is the total interest rate per period from Step 1 and the number of car payments is indicated by N. Multiply the interest rate per period R by "1 plus R to the Nth degree." Divide that figure by "1 plus R to the Nth degree" minus 1. Multiply the total by the total amount of the principal P.

The result is your monthly car payment with a trade-in vehicle.

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How to Determine the Payoff of a Car Loan

An auto loan is one of the biggest loans you will take out in your life. Your auto loan depends on the amount of money that you paid down on the car and your interest rate, and can cost you as much as several hundred dollars every month. Paying off an auto loan is often a big relief and means extra spending money with every paycheck. Only a few simple calculations are needed to figure out how much you need to pay off your auto loan ahead of time.

Instructions

1

Determine the principal amount of your loan. This can be found on the loan contract or your bill stub. It is the amount of money that was loaned.

2

Determine the annual percentage yield (APY) of your car loan. This can be done by subtracting your monthly rate from one and then multiplying this total by the number of years of your loan minus one. In other wods, APY=(1 - rate per period)(number of periods in a year - 1). This is the total interest of the loan.

3

Add your answer from Step 2 to your answer from Step 1.

4

Add the total amount of payments you have made thus far. Subtract this number from your answer in Step 3.

5

Add onto the answer from Step 4 any prepayment fees included in your contract. This figure equals the payoff for your car loan.

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How to Buy a Car at 17 Years of Age

Although many states allow you to obtain a driver's license at the age of 16, it may surprise you to learn that you might not be able to purchase a car legally by yourself until you reach 18 years of age. This is generally because a juvenile or minor cannot enter into a legal contract. Laws do vary from state to state, however, so you may find that with a consent form signed by your parents you can still purchase a car, or your parents may agree to purchase and let you pay for the car, but you will not have full ownership of it until you have another birthday.

Instructions

1

Check with your local Department of Motor Vehicles to find out the minimum age requirement for the state in which you live. Inquire about whether your state allows you to purchase a vehicle if your parents sign a consent form.

2

Determine how you will pay for the car. Remember to add in the cost of insurance, the vehicle registration and the title. Your parents will be more likely to consider your request to have them help you purchase a car if you can show them that you have thoughtfully planned how to pay for it.

3

Talk to your parents about signing the legal documents for the car you wish to purchase. If you wish to finance a vehicle, you may find that you can be listed as a co-owner. Your parents, however, will still be the legal owners of the vehicle.

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Can Your Car Be Repossessed Because You Don't Have Insurance?

It is unlikely that your lender would repossess your vehicle if you aren't maintaining your insurance policy. However, repossession reasons differ by lender; if your contract states your vehicle will be repossessed for lack of insurance coverage, the bank will collect the vehicle. Further details about repossession and insurance requirements are outlined in your loan contract.

Your Loan Contract

Review your loan contract. Reasons for repossession are stated within your paperwork. Many lenders do require a full coverage policy on vehicles with active loans, but repercussions often include adding an insurance policy to your vehicle's loan instead of repossession. Otherwise, your insurance provider must notify your lien holder of policy cancellation, in which case the lender can pursue repossession. Your lender may try to contact you first, but it does not have to if the contract clearly states otherwise.

Contact Your Lender

Your lender may contact you if it hasn't received notification of an active insurance policy or if your insurance company fails to properly update your lender of your policy renewal. Call your lender or respond to any correspondence to correct the insurance matter. If you plan to purchase another policy, let your lender know immediately. If you are maintaining a full coverage policy on your vehicle, provide proof of insurance to your lender to stop the repossession process.

Lender-Added Policy

Instead of repossession, your lender may add an insurance policy to your loan, which increases your monthly payment. Check your contract over to determine if your lender will pursue its own insurance policy. If so, your vehicle will not be repossessed, but expect your car payment to increase. Insurance policies obtained by lenders are not cost competitive; most policies are short term and exceed $1,000. An individual policy is lower priced. Additionally, if you do not pay your new car payment amount, late payments are reported to the credit bureaus, which affect your credit standing.

Maintaining Insurance

Do not let your insurance lapse. State rules vary, but many require active insurance policies for registered vehicles. Unless you turn in your license plates, you may also face fines or license suspension from your state's motor vehicle department. Your insurance company must also notify your state if your insurance lapses or cancels. If you do want to take your vehicle off the road, you may be able to purchase a comprehensive policy if your lender allows it. A comprehensive policy is cheaper than full-coverage insurance and may allow you to save money until you can afford proper insurance coverage again.

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