Financial Advice on a Lease Vs. Purchase of an Auto

A vehicle lease or purchase offers different benefits. Leasing restricts driving and car use through term and mileage limitations, so the option is not for everyone. A purchase may prove a better option for a driver who prefers to keep his car although leasing may prove beneficial to someone who normally trades out of a car every three to four years.

Long-term Pricing

Leasing may initially show a low monthly payment, but your overall cost may be the same as a finance or purchase during the term you choose for the lease. Manufacturers offer rebates for new cars, which includes thousands off the window sticker price. Leasing is often assumed on the full sticker price. To fully gauge the difference in cost, add your total number of lease payments and down payment amount to calculate the overall cost. Compare the total lease cost to a finance by adding your down payment and monthly payments over an equivalent lease term, not the entire term of the loan. The difference may be minimal.

Down Payments

You may find that you can achieve a low monthly lease payment but have to pay thousands of dollars for a down payment. Limit the amount of money you put toward a lease. If you should lose your vehicle because of damages or theft, you will not receive your down payment back from the leasing bank. With a vehicle purchase, Edmunds suggests putting down 20 percent of the vehicle's value if financing. Because you own the vehicle, you can increase your equity by decreasing your loan amount or by paying off the loan early. If you suffer a loss, you can receive money back for the vehicle's loss through insurance coverage.

Leasing Terms

If you purchase a vehicle, you can drive it as much as you'd like without concern for penalty fees. Leasing may restrict your driving so plan ahead. Lease advertisements are based on a pre-determined mileage and term. You can change the terms to suit your driving needs. Low mileage leases, such as 10,000 miles per year, may offer a low payment but prove too restrictive. You can increase your mileage allowance up to 18,000 miles per year and change your term as well. Ask your dealer to show you the cost difference between different leasing terms so you can avoid penalty fees at the end of your lease contract.

Read Your Contract

Leasing fees can prove expensive. You may have to pay a fee if you decide to transfer your lease to someone else; but if you own your vehicle, you can likely sell it without incurring any fees. Some lenders may charge a prepayment penalty fee for paying off a loan early so be sure to inquire. When you return your leased vehicle, it must have limited wear and be in good condition. Leasing banks charge for wear-and-tear and over-mileage fees. Look over your contract to find out your limits, leasing requirements and penalty fees.

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Can a Lender Repossess a Car Without a Legal Lien?

When a lender tries to repossess a car, he's exercising his rights under a legal document known as a lien. When a lender provides money for a car purchase, there is a possibility that the borrower may not pay him back. A lien provides security against this risk. It is important for borrowers to understand the basics of liens and to know their rights in the event of a repossession.

Basics of Car Liens

A lien is a legal document that secures a loan with a piece of property. In the case of a car loan, the debtor's agreement to pay is almost always secured with a lien against the car itself. The lender's ability to exercise this lien is not absolute he must follow the terms of the loan agreement with the borrower and the provisions of state law. While not every lien is consensual, a borrower usually agrees to the lien when he takes out a car loan.

Repossession

A lien grants its holder the right to take possession of property named in the document. A lender usually repossesses a vehicle as a last resort if the borrower has consistently failed to meet his obligations. According to Craig Howie, a financial reporter for AOL Autos, "the bank or lien holder has to fulfill several legal requirements before it can repossess a car." The lender usually has to give the borrower notice of his intention to repossess, and meet the paperwork filing requirements of local and state law.

Repossession Without a Lien

A lender cannot repossess a vehicle if he cannot prove he has a legally valid lien. This is because the lien is the very document that grants him this right; without it, the lender has no property interest in the car. It is rare for a lender to provide a loan without placing a lien on the collateral. Even a valid lienholder may not succeed in repossessing a vehicle if he conducts the repossession improperly or violates his end of the loan agreement.

Wrongful Liens

Not all liens are legally viable. In some unusual circumstances, a person may record a wrongful lien against another's property. In essence, a wrongful lien is a legally invalid document that its holder nonetheless claims in court, in an attempt to create a property interest where there isn't one. It is generally considered a type of fraud and in many states carries substantial legal penalties. In Utah, for example, recording a wrongful lien is a third degree felony.

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Can You Get a Car Loan in Ohio Without a Co-signer if You Are 20 Years Old?

Getting a car loan in Ohio as a 20-year-old is similar to getting a loan in any other state. While many 20-year-olds use a co-signer to get a vehicle loan, it is possible to secure your own financing without the need for a co-signer. There is nothing unique to Ohio about the process. Not using a co-signer may result in a higher interest rate, depending on your credit rating.

Do You Have a Job?

To qualify for an auto loan in Ohio, you need to show proof of income. Usually this means a full-time job. Being a full-time or part-time student does not exempt you from this requirement. In Ohio, as in other states, you must be able to show that you have the resources to pay on the loan. By not having a co-signer, the income responsibility falls on your shoulder. For the best results, you should have a full-time job in Ohio to get the loan.

How Is Your Credit History?

At 20 years old, you may not even have established a credit history yet. In many cases, not having a credit history is as bad as having terrible credit. This is because you cannot show proof of paying your debts on time and being responsible with your debt payments. If you have already established a credit history, it is important that you have good or excellent credit. While it is not impossible to get a car loan in Ohio with bad credit, you will usually pay a higher interest rate on the loan. You can enter in your Ohio zip code on the Bankrate website to get an idea of the current interest rate in your area and the type of credit rating you need to qualify for that rate. It will show you local lenders instead of car dealer financing.

Do You Have Money for a Down Payment?

It can be easier to get an auto loan when you have a down payment for the vehicle. Typically, the larger your down payment, the easier it is to qualify for financing. This is true in Ohio and all other states. The reason is that it establishes immediate equity, which is seen as less of a risk for the lending institution. A larger down payment can also result in a lower interest rate on your car loan. Bankrate recommends putting down 20 percent of the purchase price, if you can afford it.

How to Apply

When you have found a car that you want to buy, you usually have more than one option for financing. If you are buying a new or used car in Ohio from a local car dealer or car lot, you can get financing through the dealer. Or you can apply at a local credit union or bank. If you are buying from an individual, you will have to use a bank or credit union. You may get a better rate at the financial institution where you do your banking. Some of the banks with a presence throughout Ohio include Chase Bank, Bank of America, US Bank and Fifth Third Bank. To apply for the loan, you will need your Ohio driver's license and your most recent paycheck stub.

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Can a Lender Sue You for Default on an Auto Loan?

Car loans are common financial tools for purchasing new and used vehicles, because few people have the liquid assets available to pay the full purchase price for a vehicle. A car loan typically requires monthly payments, which include a portion of the principal and interest charges. If you default on your payments, your lender may sue you for the principal and legal costs.

Time for Default

A default technically occurs if you are even one day late on a car payment. However, lenders rarely take legal action on a loan if you are not severely late on your payments. The time for a default varies among lenders and according to state and federal laws -- a lender commonly considers a car loan in default if you are 30 or 60 days past due.

Collection Proceedings

Lenders typically initiate collection activity before filing a civil suit to collect unpaid balances on car loans. Most lenders have in-house collection agents who send letters and make phone calls in an attempt to bring a loan current. If in-house collection attempts are not successful, some lenders outsource collection activities to third-party collectors.

Notice of Default

If you do not make full payment of past due amounts and late fees, the lender may hire a third party to repossess the vehicle. Some states, including Ohio, require lenders to send a notice of default to borrowers after repossession, giving them an opportunity to cure a default by paying past-due amounts and late fees by a specified date to regain possession of the vehicle. Partial payment typically will not cure a default or prevent the lender from continuing collection activities or pursuing recovery through a civil suit.

Civil Suit

If the account remains past due after the notice of default has expired, and the lender believes that you will not voluntarily bring the account current, it may file a civil suit in the county in which you reside. The court will issue a summons notifying you of the suit, either in person or via mail, depending on state laws. Before the hearing, which is usually at least 28 days after the notice of suit, you may contest the suit. If you do not successfully contest the suit or attend the hearing, the court may enter a default judgment against you. If this happens, the lender can garnish your wages, freeze your bank accounts and place liens on any real estate or valuable personal property you own.

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How to Calculate a Loan Amount Based on a Payment

The principal of a loan is the initial amount of the loan, and the interest on the loan is an additional amount that the lender charges you for the loan. You will generally repay the loan by making fixed payments at regular intervals. You can calculate the loan's principal from the interest rate, number of payments and the amount of each payment.

Interest

Calculate the interest rate for the payment interval. Assume the annual interest rate on the loan is 9 percent. Divide this interest percentage by 100 to get a decimal number of 0.09. Divide this rate by the number of loan payments in a year. Assume this loan requires monthly payments, giving you a monthly interest rate of 0.09 / 12 = 0.0075.

Payments

Multiply the term of the loan in years by the number of payments in a year. Assume the term of the loan in this example is 10 years. This loan requires 10 x 12 = 120 payments to repay the loan.

Payment Amount

Determine the payment amount. You typically want to make the largest payment you can afford, to minimize the interest that you pay. Assume for this example that you can afford to make a payment of $200 each month.

Loan Amount

Compute the loan amount with the formula A = (P / i) x [1 ' (1 + i)^-N]. A is the loan amount, P is the payment, i is the interest and N is the number of payments to make. The amount of the loan is therefore (200 / 0.0075) x [1 ' (1 + 0.0075)^-120] = 15,788.33 dollars.

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How to Successfully Get Your Car Loan Reinstated

When you finance a vehicle, the vehicle serves as collateral for the loan. Should you neglect to make your payments, your lender reserves the right to repossess the car and sell it to cover the remaining balance of the loan. The amount of time that will pass between the date you stop making payments on your car loan and the date the lender repossesses the vehicle will vary by lender. In many cases, however, you may be able to pay the amount you owe, plus fees, to have the car loan reinstated.

Instructions

1

Check your states laws concerning car loan redemption. According to the Federal Trade Commission, some states have consumer protection laws that allow individuals to reinstate their car loans if they are able to pay the past due amount plus any fees that the lender incurred by repossessing the vehicle.

2

Examine your original loan contract for an acceleration clause. If your car loan contract contains one, paying the past due amount and fees will not be enough to reinstate the car loan. As soon as the loan defaults, the amount due will accelerate. This means that you will not be able to reinstate your car loan without paying off the entire balance of the loan.

3

Contact your lender and ask for a written statement of the full amount necessary to reinstate the loan.

4

Pay the past due amount, plus fees, within the necessary time frame. A lender will not hold on to your car forever while waiting for you to redeem the loan. The standard time frame to reinstate your vehicle loan is 15 days.

5

Ask for a statement in writing that the loan has been reinstated and the date and time that the loan was reinstated. Should your car be accidentally sent to auction, or re-keyed after you reinstate the loan, this document will prevent you from having to pay additional charges to recover the vehicle.

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Car Buying Rules on a Three-Day Grace Period

Whether you signed a new, used or leased car agreement, there is no three-day grace period on automobile purchases in the United States, regardless of personal circumstance. However, there are options if you change your mind because of a mechanical problem with the car or your own financial state.

Lemon Law

If your newly purchased car has mechanical problems, consult your state's lemon laws for information on returning the vehicle for a full refund. Lemon laws vary by state, but usually cover new or leased personal-use vehicles in their first or second year or first 18,000 miles, whichever occurs first. The dealer must be given the chance to remedy the problem in a set number of repair attempts, usually between two and four times. To determine if your vehicle qualifies as a lemon in your state, visit BBB.org to take the Auto Line quiz.

Used Car Rule

Buying a used car comes with risk, especially if the warranty is murky. According to the Federal Trade Commission's used car rule, all used car dealers must display a buyer's guide on the vehicle that outlines the warranty information, as-is condition, mechanical defects and the percentage of responsibility the dealer assumes after the sale is complete. If you did not receive a buyer's guide at the time of purchase, you have legal recourse to return the used car for a full refund.

Financial Solutions

If you purchased a car but changed your mind because of personal financial issues, there are a variety of ways to remedy the problem. Your best bet is to re-sell the vehicle, trade it in for a lower-cost model or find a friend or family member to take over the payments. You may lose money in the process, but your credit score will remain sound. If giving up the vehicle is not an option but you cannot afford the loan payments, consider filing bankruptcy, which will absolve you of the debt while allowing you to keep the vehicle.

Voluntary Repossession

If a repossession is imminent, talk to your creditor about your options. As a last resort, you can give the vehicle to your creditor as a voluntary repossession, which will save you money in towing and repossession charges. With a voluntary repossession, the creditor re-sells your car at auction to recoup some of the loss. Keep in mind that if the auction price does not equal your loan amount, you will be responsible for the remaining balance, which is known as a deficiency.

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