What You Need to Buy a New Car

Buying a car is a major purchase for most people. Money aside, each state has special laws that apply to car purchases with which you must comply. Apart from identifying your needs, desires and budget, buying a new car requires both money and paperwork before you can drive away in your new wheels.

Money

Like anything else you buy, you need money to buy a car. Many people use car loans to purchase new cars, obtaining the loan either through the dealership, their bank or another lender. The loan allows you to pay the full purchase price to the seller and then make periodic payments to your creditor. When you pay for a car in cash, you use your own funds to pay for the vehicle without getting a loan. However, the term "cash" is a misnomer, as you usually need to pay with a personal check or cashier's check from your bank.

Registration

When you buy a new car, you must register it with the state motor vehicles department. To register a vehicle, you must typically take the car to a motor vehicle office and pay any applicable registration and tax fees. You must also prove that you have the adequate amount of liability insurance. Registration and insurance requirements differ between state to state.

Bill of Sale

Buying a car usually involves a bill of sale, a legal document that officially records the names of the buyer and seller and the kind of car sold. Bills of sale must be recorded by a public notary. A notary serves to officially recognize the document and identify the parties who sign it. Public notaries are licensed state officials that are the only ones who can notarize a bill of sale.

Title

A car, unlike a television, computer or other piece of personal property, must have a title. A title is an official record that indicates who owns a car and whether there are any liens or encumbrances on the vehicle. When you buy a car, you must be able to obtain title through the vehicle. In most car sales, you obtain title from the seller when the seller writes your name on the back of the title as buyer.

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The Tax Benefits of Leasing Vs. Owning a Vehicle

Tax rates differ by state and areas within the state, but you can likely save on taxes if you lease a vehicle. Depending on your area's tax rate, however, this savings may not prove substantial. Before pursuing a purchase or lease, consider new car tax variables, which can help save you money in the long term.

Lease Taxes

Most states require buyers to pay taxes on a vehicle's lease payment, not the selling price of the car. However, a lease payment also includes an interest rate, so expect to pay taxes on the interest charge, as well. You can keep your taxes out of the lease payment by paying it upfront. Despite paying taxes on the lease payment and interest charge, expect to pay less toward taxes over the lease term than you would with a comparable finance.

Purchase Taxes

If you finance your vehicle or purchase it with cash, you must pay tax on the purchase price of the vehicle. Very few states offer a tax-free vehicle purchase. If your tax rate is over 8 percent, expect to pay thousands of dollars toward tax. Dealers are authorized to collect tax on the state's behalf, but if you purchase a vehicle privately, tax is often due once you transfer ownership. Call your state's motor vehicle office to determine your tax rate and budget for it accordingly.

Lease Purchase

At the end of your lease you can purchase the vehicle for its predetermined market value, which was figured during lease inception. The lease purchase price does not include taxes. In the event that you purchase a lease, it is likely that you'll pay more toward tax than you would have if financing. Shoppers often focus on monthly payment when shopping for a lease and do not negotiate the vehicle's price. As a result, you may spend thousands more for your vehicle. Expect to pay taxes on your purchase price.

Considerations

If you have a vehicle to trade in, it can help you save on tax expenses. Most states recognize that you've already paid taxes on the vehicle you intend to trade. For this reason, many states allow you to deduct the trade value from the new vehicle's purchase price before applying tax. If you have a trade worth $10,000, you would save $800 in tax charges if your area charges an 8 percent sales tax. It is not advisable to trade a vehicle for a lease. If you total the leased vehicle, expect to lose any money you used as a down payment. Insurance payoffs go to the leasing bank, not the lessee.

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Early Termination of a Leased Vehicle

When a person cannot afford to make the lease payments on a vehicle, one option is to simply return the vehicle. However, this is a bad idea for many reasons. The good news is that a number of options may allow a person with a leased vehicle to get out of the lease. Consumers should understand these options and choose the best one for their needs.

Early Termination

When you return a leased vehicle early, you must contact the lender and notify it of the situation. The lender will then arrange a time and place to take possession of the vehicle. However, you must pay penalties for early termination of the lease. These fees will vary depending on the specific lease terms, but will often be thousands of dollars. The lease documentation will note the fees for early termination. In addition to these penalties, lenders treat an early termination as a voluntary repossession, which will damage your credit score.

Selling the Car

One option for a person with a leased vehicle who needs to get rid of the vehicle is to sell it. Before considering this,you must determine whether the lease allows the buyer to purchase the car. If so, obtain the price of the vehicle from the lender. You'll then have to arrange for the sale of the car and come up with the cash to pay the difference between the sales price and the price the lender is charging for the car.

Lease Assumption

Perhaps the best way to get rid of a leased vehicle is to find someone else to assume the lease. Again, you must determine whether the lender allows another person to assume the lease and the cost of the transaction. Numerous online businesses that help consumers find someone to assume a lease. These businesses provide both a listing service for the vehicle and assistance completing the lease assumption transaction. There are fees to transfer the lease and to use an online service, but this can be the most inexpensive way to get rid of a leased vehicle.

Trading

Many leases allow you to trade in a leased vehicle for another vehicle.This generally does not allow you to get out of paying for the old lease; the dealer simply rolls the cost of the remaining lease into the new lease. However, by moving from an expensive vehicle to an economical one, a person may end up with a lower lease payment even with the addition of the remaining cost of the old lease added.

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Relief From High Interest Car Title Loans

High interest car title loans are the new scourge in lending. What many state attorneys general have deemed veiled loan sharking, these loans often trap vulnerable borrowers into high-interest, high-fee loans that customers have little hope of repaying. Similar to payday lenders, these operations feed on a struggling consumer base. To relieve yourself of a high-interest title loan, you must execute several strategies.

Budget

If you have disposable income left over at the end of the month, you're already well on your way to gaining relief from a car title loan. The first step is to set up a strict budget and exercise financial discipline. To begin, spend as you normally would for two weeks, but write down every single expense. Then, at the end of those two weeks, review your purchases and begin trimming your miscellaneous budget---coffee and other small daily purchases---and your entertainment budget. Set up a fund that will be used exclusively to pay down the principal of the loan. This will only work if you religiously stick to your budget.

Lawsuit

If you feel you've been misled or lied to about your loan, contact your state attorney general. Since the process may take a long time, you may need to contact a lawyer to handle a lawsuit. If you cannot afford an attorney, you can attempt to secure representation from your local American Civil Liberties Union office or a consumer advocacy law firm.

Managing a Loan

Keeping a loan up to date and in repayment is in the best interest of both the lender and the borrower. Contact your title loan lender and attempt to secure a "hardship" plan. A restructuring is normally temporary and will not give you full relief from payments, but it may help you catch up and pay down more of the loan in the hardship period.

Refinance

Seek refinancing options. Check your credit report (see Resources for a free copy) to make sure your scores will qualify you for a lower rate loan. Normally, any score above 660 will give you better options. Speak with your local bank or credit union about personal loans. You'll most likely be unable to secure another car loan, but a lower-interest personal loan from a reputable bank or finance company will decrease your payments.

Warning

Be careful when seeking refinancing options. Sometimes desperate borrowers go from one bad situation to another. Speak with a trusted adviser---friend, family member, accountant, financial adviser---before signing new loan paperwork.

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How to Take Over Individual Car Payments

If you find yourself in need of a new car, you may know someone who is looking to get rid of a car that he is making payments on. If you are interested in his car, you can take over their individual car payments instead of going through a car dealer. However, taking over someone's individual car payments can be very risky and should be entered into with caution, as the vehicle typically remains titled in the original owner's name.

Instructions

1

Ask the current owner of the car to contact the lender of the car loan. Have them inquire of the lender if they will rewrite the loan and allow someone else to take over the individual car payments. Some lenders will do this, providing that you can pass a credit check, and some lenders will not.

2

Type up a contract to to take over the car payments if the lender will not do a rewrite. This is the only way that you can protect your interests if you are taking over car payments without the assistance of the lender. The contract should include the seller's name and contact information, your name and contact information, the car information including VIN number, the amount of the monthly payment, how and where it is to be paid, how the title is delivered once the car is paid off, who is responsible for insurance and titling of the car, who is responsible for repairs of the car and what happens if you default on payments.

3

Take the contract to a notary with the person who is selling the car. Each of you should sign the contract in the presence of the notary. The notary will serve as witness that each of you signed the contract and will check your photo ID to make sure you are in fact the person named on the contract. Then the notary will sign and stamp, or put a seal, on the document.

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What to Bring to the Bank for an Auto Loan

Banks require many forms of documentation before approving an automobile loan. Gathering the needed documents before searching for a new vehicle will help get your loan application and approval completed quickly. Banks ask for documentation that will help them determine your ability to qualify for a vehicle loan. Banks also require documentation to comply with laws set forth by the Department of Homeland Security.

Income Documentation

Lenders typically request one to three months' worth of paycheck stubs. If you do not have the required amount of paycheck stubs, the bank may request alternate proof of income. A statement from your employer will normally suffice for proof of income in lieu of paycheck stubs. If you are self-employed, most banks will require copies of your tax return for the past two years. Bring proof of other types of income such as alimony, rental income or legal settlement if you want them included as part of your regular income.

Identification Documents

The bank will require proof of identity before considering closing your loan. A copy of your driver's license and Social Security card will provide enough proof of identity. If you do not have your Social Security card, you can request a new copy of it from the Social Security Administration. The proof of Social Security number the SSA provides will suffice to complete your loan. You can also use your U.S. passport for proof of your identity.

License, Insurance and Proof of Residency

You will need a valid driver's license, insurance for the vehicle you are purchasing and proof that you live at the address on your application. A current lease, mortgage receipt or utility bill will prove your residency. You must provide proof of vehicle insurance before you drive the vehicle off the car lot. Many insurance agents will fax a copy of your new insurance policy. You must first provide the vehicle information needed to add the vehicle to your policy.

Proof of Credit

If you do not have a credit history that is verifiable through one of the three main credit bureaus, you must provide proof that you are worthy of credit. Letters of credit from your landlord and utility providers will help prove your credit worthiness with a bank. Your past banking history can also help the bank make a determination on your credit. Ask any locally owned company you have had a positive credit relationship with to provide written verification of your credit worthiness, if they do not report to the credit bureaus.

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New Car Financing

You have numerous financing options for your new car purchase. Manufacturers offer incentives for buyers to purchase a new vehicle, whether in the form of rebates or low interest rate offers. Leasing is also a possibility. However, your credit standing may affect your financing and interest rate options.

Special Rates or Rebates

Special rates and rebate offers are advertised online at the manufacturer's website. Usually, low interest rates are offered in lieu of rebates. To obtain the special rate, you must use the manufacturer's bank for financing. Rebates may be offered without regard to how you pay for the car but may require you to use the manufacturer's bank. If so, you might obtain a higher-than-average interest rate. To determine which offer saves you more money, use an auto loan calculator to review total loan payback cost.

Leasing

Leasing offers a lower-priced option to financing. Instead of owning the vehicle as you would if pursuing a traditional finance, you can drive a new vehicle for a specified term and mileage and return it to the leasing bank at the end of the contract term, usually around three years. Leasing requires you only to pay for depreciation, not the entire vehicle cost. Mileage restrictions apply; you can often choose from 10,000 to 18,000 miles per year. Leasing offers are also advertised on manufacturer websites.

Other Financing Options

You can pursue a car loan at any loan provider you'd like. If you were declined for a loan through a manufacturer's bank for leasing or low-rate financing, you can reapply using a co-signer. Subprime lenders also exist locally or online. Subprime lenders offer loans to risky borrowers with poor credit. Many new-car dealers also use subprime lenders to obtain loans, so work with a dealer if you have credit issues. If the manufacturer doesn't require you to use its lender for rebates, you can still use your discounts when applying to an outside lender.

Considerations

Taxes and fees increase the cost of your new-car purchase. Depending on the area in which you live, you can pay thousands of dollars in tax fees. Adding an extra $1,000 to your loan amount increases your monthly payment by about $20 per month without a down payment. Find out your taxes and state fees to budget appropriately. Once you purchase your vehicle, the dealer will offer an extended warranty and other aftermarket items, which also increases your car payment. Be sure to stick your budget throughout the sales and loan process.

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