The Advantages of Having Trade-Ins When Leasing Cars

Depending on the value of your trade-in vehicle, you might decrease your lease down payment amount and still obtain low monthly payments. However, if your trade-in is worth more than the amount of the lease's taxes and fees, consider selling it privately to avoid financial risk if the car becomes declared a loss by your insurance company.

Less Down Payment Required

If you plan to pursue a lease advertisement, it likely calls for a down payment in addition to taxes and fees. This amount is often thousands of dollars. You can minimize or decrease your money out-of-pocket with your trade-in. If you owe money on your vehicle, the dealer must pay off your vehicle's loan before taking ownership of the car. If you owe less the vehicle's value, the excess amount goes toward your vehicle lease as a down payment.

Lower Monthly Payment Amount and Tax Deduction

If your car's trade-in value exceeds the down payment amount needed to obtain a certain monthly lease payment, you'll pay a lower monthly payment. For every thousand dollars you put toward a lease, your monthly payment decreases by about $30 per month. Most states allow a sales tax deduction when a trade-in exists, since you've already paid taxes on the vehicle you own. Many states only tax leased vehicles on the monthly payment amount, not the entire price of the car. If the tax deduction applies to your purchase, you might eliminate any out-of-pocket down payment requirements and still obtain a lower monthly payment amount.

Getting Rid of the Vehicle Without Hassle

To sell your vehicle privately, you'd have to advertise your vehicle for sale, answer and meet with potential buyers and arrange the paperwork for your sale. When trading your vehicle to a dealer, you only need to sign over your vehicle's title. If you still owe money on the car, the dealer arranges to satisfy the loan. If you sell privately, you must arrange to pay off your loan and acquire a lien release to sell your vehicle, which can take weeks.

Warning

When you lease a vehicle, it belongs to the leasing bank, not you. Leasing banks require lessees to purchase a full-coverage insurance policy that names the bank as the loss-payee. If your vehicle becomes a loss because of damages or theft, your insurance pay off goes directly to the leasing bank. You will not receive any of your money back from the bank, even if you paid the entire lease cost upfront. If your vehicle's value exceeds the cost of taxes and fees, consider selling it on your own to provide a down payment. Keep the rest of the money to pay your lease payments instead.

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Car Repossession Laws in Virginia

The Virginia Consumer Protection Law and Title 6.2 of the Code of Virginia outline the rights consumers have against lenders performing repossessions of their vehicles. The Virginia Code requires lenders to disclose their rights in their written loan contracts before they can legally repossess their vehicles. If they fail to disclose their rights to repossess, they cannot proceed with repossession.

Written Notice

Effective October 1, 2010, the Virginia Assembly passed legislation requiring lenders to send borrowers a default letter before attempting to repossess their vehicles. The lender must send a written notice by first-class mail at least 10 days before repossession. The notice must state the amount of principal and interest due and owing, and alert the borrower of default and provide him with notice of the lender's ability to repossess the vehicle if the buyer does not pay the entire delinquency by a prescribed date.

Repossession

If the buyer does not pay the entire amount owing in principal and interest, the lender can repossess his vehicle. However, the lender cannot sue for any remaining loan obligation and the costs of repossession if he does not provide the written notice at least 10 days in advance of repossession. At least 15 days before selling the borrower's repossessed vehicle, Virginia law requires lenders to notify the borrower of the time and date of the vehicle sale; a written account of the amount due and interest charged through the date of repossession; costs of repossession; and the costs of preparing to sell the reclaimed vehicle. During the period after repossession but before the sale, the lender must give the delinquent borrower a right to redeem his vehicle.

Right of Redemption and Right to Surplus

Under Virginia law, borrowers have a right of redemption to reclaim their vehicles before the sale date if they pay all expenses due, including the costs of repossession, principal, interest, expenses incurred to advertise the sale and any other preparation costs. Additionally, Virginia allows buyers to receive any surplus funds obtained from sales if they do not exercise their rights of redemption. Lenders must return any overage after deducting for interest, the principal loan amount, reasonable expenses and sale costs. Lenders have 30 days from the date of auction or sale to send their proceeds.

Considerations

Since state laws can frequently change, do not use this information as a substitute for legal advice. Seek advice through an attorney licensed to practice law in your state.

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What Car Loan Documents Do Banks Require From an Individual Seller?

Selling your car directly to an individual buyer can bring you a higher price than if you trade it in at a car dealer. Assembling the necessary paperwork beforehand may make your car easier to sell. The transfer of ownership also will go more smoothly when you find a buyer. Lenders require certain documents from both the buyer and seller when making a car loan.

Bill of Sale

A bill of sale is an agreement that makes the sale contract between you and the buyer legal. The document must include your name and address, the buyer's name and address and the selling price. In many states, the law requires both the buyer and seller to sign the bill of sale. Other information listed on a bill of sale includes a description of the vehicle, the vehicle identification number (VIN) and odometer reading at the time of sale. The buyer needs a bill of sale to show the lender as well as to register and title the vehicle.

Vehicle History Report

A vehicle history report from a national database such as Carfax , AutoCheck or the National Motor Vehicle Title and Information System shows that your vehicle has a clean history, which can improve your chances of selling it. Vehicle history reports include information about past owners, previous odometer readings, service records and accidents involving the vehicle. The vehicle's maintenance record also gives a potential buyer more information about the car's history. A mechanical inspection report could be a worthwhile investment on your part as well. Showing that the vehicle was mechanically inspected before the purchase could help the buyer's chances of getting an auto loan. Ask the mechanic to include the make, model and VIN of the vehicle on the report along with a cost estimate for any necessary repairs.

Vehicle Title

As the seller, you cannot transfer ownership of the vehicle until there is no lien holder listed on the title. In most states, you are not allowed to privately sell a vehicle until you have clear title. This means you have to repay your car loan in full before the lender will release the lien on the vehicle. A lien release is proof that a loan you have on the vehicle has been satisfied. Once you pay off the auto loan, a lender usually releases the title marked paid. However, some states require you to go to the department of motor vehicles to get your title. These states generally require you to pay a fee before releasing the title.

Other Documentation

Providing an estimated retail value for your vehicle based on Kelley Blue Book or National Automobile Dealers Association and trade magazines can be helpful to a buyer's lender. Other documentation that is not always required but which can be useful includes transferable manufacturer's warranty documents or service contracts that haven't yet expired. Writing a formal purchase agreement can also be helpful to a buyer applying for financing. A written contract holds more ground, as the seller must honor any promises stated in the contract. If you sell the vehicle "as is," clearly state that in the contract. Even though implied warranties don't normally apply to private individuals selling a vehicle, stating it in the sale contract gives you additional protection by removing any implied warranties.

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If a Car Company Closes Do I Still Have to Pay the Remaining Balance on the Car?

The process of getting a loan to buy a new car is complicated, especially when you deal with representatives from different companies including the automaker, the car dealership and one or more banks. Whatever the terms of your loan and purchase are, you'll need to continue making payments according to your purchase agreement even if one or more of these companies closes.

Your Auto Loan

Once you sign a loan agreement to take possession of your new car, your loan becomes a valuable commodity. The dealer receives the full purchase amount from your lender, whom you must pay in monthly installments according to the terms you agree to. The lender takes on the risk that you won't be able to pay but also reserves the right to repossess your vehicle to recover some of its cost. The lender may sell your loan, often packaged with other auto loans into a financial instrument known as a debt security, to an investor who is willing to pay cash up front and wait to make a profit by collecting the interest you pay.

Bank Failure

Most auto lenders are commercial banks, which means they are exposed to risk through many types of loans that they issue. If the bank that owns your loan fails, it does not release you from your obligation to pay off the balance of your car. Instead, the bank will likely sell your loan to another bank, which will continue to collect your payments. Your loan is an asset, which means the bank that owns it can sell it to raise cash or use it as collateral to borrow money to stay in business.

Dealership Closures

If the dealership where you buy your car closes, it will do nothing to affect your loan. Dealers don't make loans directly to customers, even if the salesperson who shows you the car and negotiates a price also handles the loan paperwork. Instead, dealers work with banks through special arrangements. The company listed on the loan statements you receive is the owner of your loan, although the dealer may continue to contact you regarding your satisfaction and service or warranties for your vehicle.

Automaker Bankruptcy

Automakers are even further removed from the auto loan process. They work with dealers through franchise agreements, selling their vehicles at wholesale prices and allowing dealers to handle the final transactions. If an automaker closes or goes bankrupt, its customers continue paying off their loans. When automakers offer financing through affiliated lending programs, these programs are actually separate entities that may not be affected by the bankruptcy. In other cases, the automaker-affiliated lender will sell your loan to another bank, which will change who receives your payments but not how much, or for how long, you need to pay.

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Is a Down Payment Required to Lease a Car?

Many lease advertisements offer low monthly payments but state that a down payment is necessary. You do not have to pay the entire specified down-payment amount, although your payment will likely increase. Most leasing banks only require you to put your first payment down, although some banks may require additional fees, such as a security deposit.

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Manufacturer lease advertisements boasting low monthly payments are designed to attract buyers. Lease programs are usually based on predetermined future resale value and interest rate. For current promotions, the low monthly payment is usually a best-case scenario, meaning a longer term, less money down or additional mileage allowance will increase the price. If you want the exact payment you see, you do have to put the required money down unless you negotiate the vehicle's sticker price.

Lease Modification

You can change the lease's annual mileage allowance, term and money down requirements to fit your driving and budget needs. Any changes to the lease will increase its monthly payment. For example, every $1,000 that you put down toward the lease equals about $30 less in payment per month. Keep this in mind when you're shopping for a lease. A lease that looks attractive at $199 per month can easily become $260 per month if you decrease your down payment by $2,000.

Negotiating

Many lessees focus on monthly payment rather than overall vehicle cost. If you lease a vehicle and don't negotiate, the dealer makes full profit for its sale, as the leasing bank purchases the car at sticker price. The bank must purchase the vehicle before it leases to you. If you negotiate the price of the vehicle, you may achieve a monthly payment close to the one you saw advertised without putting any money down.

Benefits

If your leased vehicle should become a loss from an accident, damage or theft, any money you put down is lost. Even though you will likely pay a higher lease payment, you won't experience the financial hardship that can result from a large down payment. A leasing bank is the true owner of a leased vehicle and your full coverage insurance reflects this. The bank is listed as your insurance policy's loss-payee, meaning any insurance payoff goes to the bank; you will receive nothing.

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How Hard Is It to Get an Auto Loan From a Bank With No Credit?

If you have no credit history because you've had no loans and few --- if any --- credit cards, getting a car loan is going to be a challenge, but that doesn't mean it's impossible. The key to finding financing is taking your time, shopping around and knowing where your credit stands. You have options if your credit score is very low, so avoid the temptation to get desperate.

The Credit Lowdown

If your credit is below 550, it may be almost impossible to get a car loan from a bank, even one designed for those with bad credit. Scores between 550 and 680 are considered "subprime," which means they command a higher interest rate than those with a higher credit score. Those below 620 are particularly low, with the highest interest rates in the car loan industry, but you may find a bank willing to lend to you. To know where you stand and how hard it may be to get a car loan, consider paying for a copy of your credit score.

Loans for College Students

Certain online lenders offer financing options for college students or other first-time buyers who wish to buy a new car. These have high interest rates but may be the only option if you have a sparse credit history. If you have no credit simply because you haven't used credit for very long, this might be an option. Always research other choices first because of the high APR on these loans. These loans often prey on uneducated borrowers with high fees, so do your homework before you apply.

Co-Signer

If you need a loan and have credit so low that no bank will give you a loan, you may be able to get one with a co-signer. If you choose to go this route, make sure both your signature and the signature of your co-signer are on the car loan. Certain lenders accept just the signature of the co-signer, which places the car's title in his name. Choose someone with a solid credit score to offset your negative one.

Establishing Credit

If you can wait to get a loan, you can take a few steps to improve your credit and make it much easier to get a car loan. By opening a couple of credit cards, using them regularly and then paying off the bills each month, you can establish credit history and improve your chances of qualifying for a loan. Try to maintain the same job and avoid moving from one home to another, as these can also affect how a lender looks at you when considering your loan application.

Alternatives

The alternatives to getting a car loan when you have no credit revolve around finding a way to pay cash for the car. If you can wait to purchase the car and save the money you would have been making toward the car payment, eventually having enough to pay cash, you can avoid the loan process. If you need a car now and know someone who's willing to offer you a loan, you can make payments to that individual rather than the bank. This option doesn't help improve your credit history, and it can create a strain on your relationship with that person, so use it cautiously.

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How to Get an Auto Loan Without Credit

Need an auto loan without credit? It is possible, and it may be easier than you think. Run through these steps, consider your options, and get an auto line without credit.

Instructions

1




THINK ABOUT FAMILY AND FRIENDS FOR HELP WITH YOUR AUTO LOAN.

If you have bad credit, or no credit, one of the best ways to get it is to ask a close and trusted family member. Be sure to explain your situation and give them plenty of room to say 'no thanks' without feeling awkward. Before you ask though, be sure to know the options. See the next two steps for two options. Otherwise, skip to step four.

Just be sure you aren't always asking family and friends for money and help. Make it a one time deal and make sure you pay it off on time or even early.

2




DRAFT A LEGAL PROMISSORY NOTE WITH YOUR FRIEND OR FAMILY MEMBER

Your personal lender can pick the percentage and set up the pay back period. Promissory notes are available for free online. You can even pick up a free amortization table online and they might as well be the bank. Let them know you will pay automatically every month. (See tips below)

3




GET A CO-SIGNER FOR YOUR AUTO LOAN.

If you know someone with excellent credit you can piggy back on their credit. If someone is willing to cosign a loan with you at the bank they are truly offering you a huge favor. This lets their good credit build your credit. However, if you don't pay the loan, their credit suffers. Do not break their trust.

4




GET HELP FROM THE AUTO DEALER FOR YOUR LOAN.

Sometimes an auto dealer will lend you money themselves. If there is a good reason you don't have credit that you can prove, this may be an option for you.

5




CONSIDER PEER-TO-PEER LENDING SOURCES

If you don't have family or friends who can help, and neither banks nor auto-dealers will help turn to the online community. You will have to create a profile, reveal your credit number, and decide the highest interest rate you are willing to pay on your auto loan. Since these sites often base their loans on a 360 month cycle, it fits well with an auto loan.

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