Tips on Buying a Car for a College Student

Many college students don't have cars because they are busy studying and don't have a job, so they can't qualify for a car loan. Those who do buy a car need to take different social and financial conditions into account than someone who has completed school and is working full-time. Some students use cars that belong to their parents, or that were purchased for them by their parents.

Buy Used

A brand-new car is an indulgence that isn't appropriate for someone still in college. One- or two-year-old cars that are in excellent condition can be bought for thousands less than a new car. Some will even still have the warranty in effect. If you are a college student or buying for a college student, focus on getting a solid, dependable car that isn't going to give you trouble and require expensive repairs in the near future. Ideally, buy from someone you know or from a reputable dealer.

Pay for Value

When you enter the car market, you may be tempted by cheap cars that look like really good deals. However, unless the owner is really ignorant about cars, virtually any car that is really cheap is cheap for a reason. Paying little money for a worn-out or problem-plagued car is just paying to inherit someone else's problems. While you can save a lot of money buying used as opposed to new, you need to find the happy medium between too new and too old, which translates to too expensive and too cheap.

Considerations for Students

Young students who are away from home for the first time probably have a lot to learn about many things, including car maintenance. Students who don't have the inclination, the talent or the time to care for their own cars should develop a relationship with a good mechanic who can perform regular oil changes, tune-ups and repairs. Students should also investigate the complications of owning a car at their college. Parking can be expensive on some campuses, and crime and break-ins also need to be taken into consideration in some areas. Be sure the student understands that the cumulative expenses of a car, including gas, insurance, registration and maintenance, can add up to a substantial amount of money.

Traps to Avoid

Students who own cars need to have cars that their budgets can support. Making large payments on an excessively expensive car may be a distraction from college courses and may require the student to get a job to help pay for the car. A student who is the only person in his circle of friends with a car may find himself constantly being asked to give rides to people. A student who buys a car without a convenient place to park it may find himself with a car that he is paying for but not using very much.

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Can a Family Member Repo Your Car if You Owe Them Money?

"Repossession," or "repo," is a term used to describe a creditor taking back property from a debtor who has defaulted on a secured property loan. In general, this term is only applied to actual physical property, such as land, buildings, or vehicles, and a creditor can only repossess someone's property if he holds a lien on that particular piece of property. Under most circumstances, a personal loan given by a friend or family member does not entitle the lender to take the borrower's vehicle if the borrower defaults.

Auto Lenders

Auto lenders, or automobile financing companies, provide loans to assist people in purchasing new or used vehicles. Auto loan agreements usually state that if the buyer defaults on the payments, the lender has the right to take the vehicle from the buyer without notice, and without taking the buyer to court. Auto lenders may contract a third party to repossess a vehicle. The repo agent is allowed to go on to the buyer's property to retrieve the vehicle, but cannot enter the buyer's home or garage without permission. Any repossession involving threats, violence or a "breach of the peace" against the buyer are unlawful.

Credit Card Companies

Credit card companies have many options available to help recover money a cardholder owes to them, but a credit card company cannot threaten to take someone's personal property, including a home, vehicle, furniture or electronics, as payment for a balance owed unless the credit card company sues the cardholder, is awarded a judgment by a court, and then files a legal lien against the cardholder's personal property. A credit card company cannot threaten to take someone's personal property without first pursuing the balance owed through the court system.

Collection Agencies

Some unscrupulous collection agencies will use harassment or threats to convince a debtor to find a way to pay the balance owed. Collection agencies are bound by the Fair Debt Collection Practices Act (FDCPA), and cannot use illegal methods to coerce someone into paying a debt. Unless a collection agency was hired by the original auto lender to collect a balance owed on a vehicle, threatening to repossess a debtor's car would be considered an unethical or illegal collection practice.

Individual or Personal Lenders

If an individual loans another person money to purchase a car, that individual may be considered a legal lien holder on that car, if there is a valid contract between the two people assigning that right to the individual lender. But if an individual makes a loan to another person --- such as a loan for living expenses --- without a contract designating something as collateral, that loan is unsecured, and does not entitle the lender to a lien on any of the debtor's personal property. So, if John loans Ann $500 to pay her rent after she loses her job, and Ann is unable to pay John back, John cannot threaten to take Ann's car unless John and Ann signed a contract stating the $500 was a secured loan, with Ann's car as collateral. If John takes Ann's car to repay himself for his loan without Ann's permission, Ann can charge John with auto theft.

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What Is the Average Interest Rate for a Car After Bankruptcy?

When you apply for a car loan, a lender uses your credit report and credit score as main factors to determine the loan terms you receive. A bankruptcy on your credit report does significant damage. Anyone with a recent bankruptcy may have difficulty getting a loan. If you can get a loan, you will likely receive much higher interest rates than those who have not gone through bankruptcy.

Credit Scores

Your credit score will affect the interest rate you receive on any loan offer. A credit score is a number, usually between about 300 and 850, that represents how well you've managed credit in the past. Influencing this are positive factors, such as paying your bills on time, and negative ones such as bankruptcy. In general, a bankruptcy significantly lowers your score, but the longer you wait after the bankruptcy, the less impact it will have.

Bankruptcy's Impact

Credit bureaus do not typically reveal how much impact a bankruptcy has on your score. However, Yahoo Finance reports that a bankruptcy will lower your score by 130 to 240 points. If, for example, you had a credit score of 780, bankruptcy can drag your score down to between 560 and 540. If you started with a 680 score, you might go down to between 550 and 530.

Highs and Lows

Lenders generally consider anyone with a credit score below 620 as a "sub-prime" borrower. Anyone with a score lower than this will have trouble getting a loan. If a creditor makes an offer, you'll likely receive the least desirable terms and the highest interest rates. However, merely having a bankruptcy doesn't guarantee that you'll have a low score forever. If you increase your score before applying for the loan, you can get better terms, regardless of the earlier bankruptcy on your report.

Car Loan

Loan rates fluctuate over time. However, buyers with high credit scores receive the best interest rates available when taking out a car loan. Those with low credit scores receive the highest rates. For example, as of February 2011, Community America Credit Union offers auto loans with an annual percentage rate ranging between 3.75 percent and 15 percent. The rates not only differ because of an individual's credit score, but also depend on whether the car is new or used and the term of the loan.

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What Gap Insurance Covers on Leases

Gap insurance is purchased when you lease a vehicle. If your vehicle is determined a loss by your insurance company, whether by accident, damage or theft during your lease, you'd owe your bank for the vehicle's value instead of just the lease amount. Your insurance company would pay the bank for the vehicle's market value (instead of its retail value) and gap insurance would pay the remaining balance due.

Your Bank's Loss

To better understand the purpose of gap insurance, first understand the loss a leasing bank may sustain if your vehicle is declared a loss by your insurance company. When you lease a vehicle, your leasing bank pays the dealership the vehicle's entire value, whether you negotiated its price or not. If your vehicle is declared a loss, your bank loses the car's entire value, not just your lease amount. During a lease, you pay for about half of the vehicle's value. At the end of the lease, the bank resells the car to recoup the rest of its money.

Insurance Payoff

You're required to maintain full-coverage insurance during the term of your lease. This coverage protects the bank from total financial loss of the vehicle. Reasons for a vehicle loss might include an accident, theft or any instance in which damages and repairs exceed the car's value. Your insurance company will pay your leasing bank for the car's market value and nothing more. New cars are most affected by depreciation, losing thousands in value once purchased. Because lease payments are lower than financing, you pay toward equity slower. For this reason, your insurance payoff is unlikely to cover the bank's loss during your contract term.

Benefits of Gap Insurance

After your vehicle's market value is paid to your bank, it is very likely that the bank is still at loss for the vehicle's cost. As per your lease contract, you are responsible for paying the gap between your vehicle's market value and its actual cost. Gap insurance pays this balance so you don't have to. Without gap insurance, you would have to keep paying your bank until the vehicle's purchase price was satisfied. While paying toward the vehicle's value, your lease account would remain as an open account on your credit report, which can affect an approval for another loan or lease until the account is paid in full.

Gap Insurance Purchase and Cost

Prices for gap insurance differ by state and provider. Some states cap the cost of gap insurance to minimize provider profit. If you live in one of these states, expect to pay a one-time fee of about $100. A price that exceeds $100 results in provider profit and is negotiable. Some providers may charge in excess of $600 for gap insurance. Check with your insurance company, leasing bank or a dealership to shop costs. You'll only pay for gap insurance coverage at the beginning of your lease, as it is a condition of your leasing contract.

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Help for Victims of Car Theft

Victims of car theft are often left shocked and dismayed as well as confused as to what to do next. A careful and calm approach can lead to a satisfactory resolution -- possibly even a recovery of the vehicle. It is important to get in touch with all of the appropriate parties as soon as possible after the occurrence to resolve the situation.

Statistics and General Information

Officials estimate that there are more than a million cases of auto theft each year in the United States. These thefts cost consumers close to $8 billion per year. The majority of thefts occur in major metropolitan areas and near ports, where illegal exporting of cars sometimes occurs. Some car models, such as certain Hondas and Toyotas, are more susceptible to theft because their parts are very valuable on the black market. In other cases the presence of valuable components, such as stereo systems, increases the chances of theft.

Police Report

The first step for a victim of car theft is to call the police to make a report. Describe the entire situation, from the time and place you left the vehicle to the moment you noticed that it was missing. The police initiate an investigation and provide you with documentation of the incident. In some cases the police may be able to retrieve surveillance tape to try to catch the thief in action.

Insurance

If you have full insurance coverage, including coverage for theft, you must call your insurer to submit a claim. The insurer needs a thorough description of the incident and a copy of the police report in order to process the claim. After an investigation, the insurer can then authorize compensation or a replacement vehicle to get you back on the road. Your policy may provide for a rental vehicle during the investigation and replacement process.

Preventive Measures

Once you've been a victim of car theft, you know the importance of taking preventive measures in the future. Getting a standard car alarm is just the start --- consider investing in a number of additional, more effective tools. For instance, brake locks are often very effective in preventing theft. They slide over the brake pedal so that only you can put the car in gear using your key. Stolen vehicle recovery systems, such as LoJack, can track and locate the car as soon as it is determined to be missing. Some vehicle systems shut off the car remotely. Other simple preventive measures include securing a garage space when parking and removing valuables from inside of the car when not in use.

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What Happens If I Don't Pay a Car Loan After a Total Loss?

As it states in your contract, you're responsible for paying off your vehicle's loan even if you no longer have the vehicle. Before you assume that you owe the total loan amount, determine what kind of coverage you have on your car --- insurance is usually mandatory for a vehicle loan. If a balance is due, you must pay it, or the lender can take you to court.

Full-Coverage Insurance

You should have a full-coverage policy in effect on your vehicle because you have a loan on it --- this is a bank requirement. Insurance companies report lapses in coverage, cancellations and renewals to your lender. If you don't supply sufficient coverage, banks usually enforce an expensive, full-coverage policy. A full-coverage policy covers your vehicle's market value, even if you were at fault in the total-loss incident. Check with your insurance company to find out how much of the loan will be paid off.

GAP Insurance

Banks may also require guaranteed auto protection, or GAP, insurance coverage for car loans, or this type of insurance may be offered if you bought the vehicle at a dealership. Dealers may sneak the cost and coverage into your loan amount for profit reasons. GAP insurance covers the "gap" between the market value of your vehicle and its loan amount. Check your original purchase paperwork to find out if you have this coverage, or call the originating dealership to ask if it was included in your sale. Also check with your insurance provider, which may include GAP insurance.

Arranging Payments

Whether you have adequate coverage or not, you have to make arrangements to pay if a balance still exists on the loan. Call your bank to find out if you can set up a payment plan that works for you. Or, if you plan to purchase a new car, you can ask the dealership to roll over the loan balance in your new loan. This possibility depends on your credit and the new vehicle's equity, but it can eliminate the need for you to come up with the cash.

Credit Reporting

If you don't pay for your loan, the bank reports to the major credit bureaus that you defaulted on the vehicle's loan. The loan remains open with a balance for future creditors to see, most likely affecting future loan options and interest rates. The bank can sue you for the amount due, eventually garnishing your wages to satisfy the debt. Be sure to have adequate coverage in place for future loans, as the financial consequences can prove substantial.

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Can You Make an Interest Payment on Your Car Loans?

A portion of your car payment goes toward your loan's principal amount; the rest goes toward interest charges. Interest is figured on the loan's current balance, so the amount you pay toward interest changes as each monthly payment changes your balance. For this reason, you should aim to make payments toward the loan's principal amount to reduce your loan balance, not the interest.

Interest Charges

The amount of interest you pay with each car payment is highest when you first initiate your loan. To fully gauge overall interest and the amount of your monthly payment that goes toward it every month, use an online calculator or talk to your lender. The First Car Guide website offers a calculator that breaks down changing interest payments each month and the total amount you pay over time. Because the amount you pay toward interest changes monthly, paying toward the loan's principal can save you money in interest charges.

Early Payoff Penalty

Banks usually allow you to pay off your auto loan early. However, they may charge a penalty fee for doing so. Before you make any extra payments toward your loan amount, talk with your bank to find out if early payoff fees exist. Or you can review your bank contract, which also states applicable loan penalty fees. Banks may require that you keep your loan open for at least several months. If fees do exist for paying off your loan early, don't make extra payments unless you can significantly save on your interest charges.

Bank Contact

Don't just pay a higher car payment without speaking to your bank beforehand. Some banks apply the extra payment toward your next month's payment; others apply it toward interest. Talk with your bank about sending in the extra payment and how you should go about doing so. It's financially beneficial to apply the extra payment toward your principal amount; most banks require that you add a note or send an extra payment to accomplish this.

Another Option

If you feel your interest rate is high, consider refinancing your auto loan. If current interest rates are lower than yours, you can benefit from refinancing. You can save thousands of dollars with a lower rate and also decrease your payment. You can also shorten your loan term to pay off the loan faster. If your new rate is low enough, you may be able to shorten your term and pay the same monthly payment.

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