How Does Using Money As Collateral Work on a Car Loan?

Generally, when you take out a car loan you use the car being financed as the collateral for the loan, which means that the lender can repossess the car if you default on your loan payments. However, you can also finance a car by using a cash-secured loan, in which case the lender has no claim upon the car.

Cash

In order to take out a cash-secured loan, you must first establish a deposit account such as a certificate of deposit or a savings account. You must deposit a sum of money into the account that matches or exceeds the amount that you intend to borrow to finance your car. The bank places a freeze or hard-hold on the CD or savings account, which means you cannot access any of the money in the account until you have paid off the loan.

Loan

When you take out a CD or savings-secured loan, the lender does not have to check your credit report since your deposit account provides your lender with liquid collateral that cannot lose value over time. However, you must provide your lender with evidence of your income in order to prove that you can afford to repay the loan despite having no access to the funds in the frozen deposit account. Your lender may limit your loan amount to a sum of money just below the balance of your deposit account in order to allow for any late fees that you may incur.

Expense

When you take out a regular car loan you must pay interest on the debt and interest rates on car loans roughly follow the United States prime rate. Interest rates on cash secured loans also follow prime rate so you pay roughly the same rate on either a car loan or an auto secured loan. However, the interest that you earn on the CD securing your cash loan, offsets the interest that you pay on the debt. Therefore, cash-secured loans are less expensive than regular car loans.

Benefits

It may seem nonsensical to pay to borrow money in the form of a cash-secured loan when you have sufficient cash to buy a car. However, many people who have poor credit use cash-secured loans to buy cars because the loans are reported to the credit bureaus. Typically, car loans have term times of between two and six years and assuming that you make your payments on time, you can significantly improve your credit score by taking out one of these loans. When you receive the loan proceeds, the bank makes the check payable to you so in actual fact you can use the money for any purpose and not just for buying a car.

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How to Buyout a Car Lease

Leasing a car is sometimes the best option for consumers as it provides a smaller monthly payment to work with. In some cases, after leasing a car, you decide that you no longer want to lease and would rather buy the car. While you lease the car, the leasing company may give you the option to buy the vehicle. Buying out a lease allows you to get out of the contract and start using the car as you want.

Instructions

1

Review your lease paperwork. When you lease a car, the car dealer provides you with information about buying out your lease and the process for turning your car back in. The paperwork typically includes information about the amount to buy the car at the end of the term. This gives you an idea of what you will pay for the car if you wait until the end of the term.

2

Contact the dealer to find out what the current buyout price is. The buyout price changes as you make payments on the lease and the value of the car fluctuates. The dealer can calculate the current buyout price for the vehicle and give you a quote.

3

Arrange the financing for the purchase of your vehicle. If you have cash, you may simply pay the dealer directly. If you have to get a loan, apply with an auto lender and get a check once you are approved. The lender will give you a check to give to the dealer for the purchase of your vehicle.

4

Set up a time to visit the dealer and bring the payment for the vehicle with you. You will complete some paperwork and give the money to the dealership before the car will become yours.

5

Pay the sales tax with your local department of motor vehicles or state revenue office.

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How to Lease a BMW

Leasing a BMW is different from leasing an average car. For starters, luxury cars tend to hold their value. In fact, a high resale value creates a low monthly lease payment. Individuals interested in leasing a luxury car usually prefer convenience and like to avoid maintenance or repair work.

Instructions

1

Decide what you want to lease. The 2009 and 2010 model years of BMW offer more than a dozen models to lease. Each car has different options and features. Consider whether you want a well-equipped car or a standard edition.

2

Determine your ideal financing and leasing structure. Keep in mind variables such as length of the lease and mileage allowance. One lease advertised by BMW is a 36-month lease, well equipped, for $369 per month. Some leases have a cash offer depending on the model and year.

3

Understand the terms of the lease. Considerations include down payment, first month's down payment, security deposit, acquisition fee and cash due at signing. Some of these factors might be fixed depending on the dealership, but changing any of them usually affects your monthly lease payment or the amount due at signing.

4

Estimate your monthly payment. The BMW website has a robust tool for estimating monthly payments based on the state of purchase, model type and dealer accessories.

5

Decide on financing. Payment options include EasyPay (paying directly through your financial institution), PrePay lease (single upfront payment that is less than the sum of monthly payments on a traditional lease), Multiple Lease Security Deposits (reduced lease payments resulting in a higher refundable security deposit), and Advanced Financing Payments (pay in advance without prepayment penalties).

6

Contact the dealer. Locate a dealer in your area at bmsusa.com and make an appointment; or, to speak to a BMW representative, call toll free (800) 578-5000.

7

Use non-BMW dealership resources. Sites like swapalease.com allow car leaseholders to negotiate exchanges on leases. BMWs swaps are popular. Note that a swap implies that you already hold a lease.

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How to Get a Repo'd Vehicle Back

A re-possessed car is not necessarily gone for good, but consumers must act quickly to get a repo'd vehicle back. The procedure varies depending on the state in which you live, but most jurisdictions provide opportunities to get the car back if certain guidelines are met. If you are not able to negotiate favorable terms with the creditor, you will be able to get your personal possessions from the vehicle, such as electronics, maps and anything else kept in the car at the time it was re-possessed.

Instructions

1

Verify that the car has been re-possessed. Contact your lender to make sure they are responsible for the missing vehicle. Let them know that you are interested in getting the car back.

2

Determine the outstanding balance on the loan. In order to get a repo'd vehicle back in most jurisdictions, you must be able to remit the outstanding balance to the lender.

3

Ask about other fees required to get the repo'd vehicle back. According to Consumer Action, the loan company can insist you pay the entire loan on the vehicle rather than just the balance owed, as well as any expenses they incurred during repossession.

4

Find out if you are eligible to get the repo'd vehicle back. In some areas, such as Los Angeles County, loan companies can refuse to give back a re-possessed car if certain criteria exist, such as a prior re-possession within twelve months or trying to hide the vehicle from the re-possession company.

5

Pay the balance on the loan and any other fees the loan company requires. Make sure you get a receipt for any funds remitted and that you receive the title to the car if you pay it off in full.

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Car Grants for the Disabled

According to a survey conducted by the U.S. Census in 2005, roughly 41.3 million Americans suffer from some kind of disability. From mental to physical, disabled individuals are greatly impacted as well as their families. To improve the livelihood and accessibility of disabled individuals, several governmental programs, foundations and organizations provide grants for the purchase of adaptive automobiles and equipment.

Automobile and Special Adaptive Equipment Grants for Veterans

The Department of Veterans Affairs provides grants up to $11,000 for disabled veterans for their service. To be eligible, veterans must have suffered the impairment or loss of vision or one or both hands or feet in the line of duty. In addition to the $11,000, the department provides grants for adaptive equipment on current cars, such as steering handles and wheelchair lifts.

U.S. Department of Veterans Affairs

810 Vermont Avenue

Washington, DC 20410

800-837-2000

va.gov

Muscular Dystrophy Family Foundation

The Muscular Dystrophy Family Foundation assists with the purchase of adapting equipment for current automobiles for families that qualify. For those individuals suffering from muscular dystrophy, grant funding is provided for specialized driving equipment such as van lifts. In some cases, disabled individuals can received funding to purchase larger vehicles such as vans.

Muscular Dystrophy Family Foundation

7330 US 31 S.

Indianapolis, IN 46224

800-644-1214

notboundariesff.org

Brighter Tomorrow Foundation

The Brighter Tomorrow Foundation serves disabled individuals in Dayton, Ohio. The foundation provides programs and grants to disabled individuals and their families to help improve their quality of life. In addition to helping with housing, education and extracurricular projects, the foundation provides grants for adaptive car equipment. The foundation assists disabled citizens and their families in living full lives by awarding equipment such as special steering-wheel handles, chairlifts and vans.

The Brighter Tomorrow Foundation

600 Kettering Tower

Dayton, OH 46421

927-223-4490

brightertomorrowfoundation.org

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Car Repair Vs. Buying Another Car

Consumer reporter Clark Howard told people on his radio show that, on average, people get a new car every three or four years. During a down economy, however, many people can no longer afford that luxury. Hanging on to your car, even if it means making repairs, is one possible money-saving option, but you need to know how long you should hold onto your car and when to throw in the towel.

Decision

It's a happy day when you've made your final car payment and can now drive your vehicle free and clear, barring gas, maintenance and insurance. But with older cars, something invariably goes wrong, and you have to shell out some bucks for repairs. The first time that happens, it might not be a big deal; you might even have expected to make a repair, but as the car ages and you are pouring more money into it, determine whether it's time to get rid of the car.

Typical Repairs

According to Edmunds.com, some expensive repairs are unavoidable on an aging car, such as axle boots, brake rotors and the timing belt, usually around the 90,000 to 120,000 mile mark. While these types of repairs are going to hurt your wallet, it is almost always cheaper to get them done than to buy a new car. If you have a blown motor or a bad transmission and your car is worth more than the cost of the repair, go ahead and get it done, because that repair is still going to be cheaper than buying new.

Reasons to Buy

If you don't want to worry about your car breaking down on you at an inopportune time, you might want to buy a new car. Once your car gets to a certain age, getting it repaired does not guarantee that you won't have to repair it again soon. You won't have to worry about a new car breaking down for at least three years. If you are spending more time at the repair shop than you can afford, you also might want to get a new car. Sometimes, the mechanic doesn't fix your car properly, which could require several frustrating back-and-forth trips, cutting into time you could be at work or with your family, in addition to the expense.

Car's Worth

Perhaps the most basic way to determine when to repair versus when to buy another car is when the cost of repairs is going to be more that what the vehicle is worth. Check the Kelley Blue Book to find out. If that is your situation, your best money-saving bet is probably to buy a used car. Avoid a new set of problems by taking the vehicle to a mechanic before you buy it, and only buy it if the mechanic confirms that the car is in good shape. Buying a certified used vehicle, which is a car only two or three years old, is usually a good way to go because these cars often come with warranties, backed by the manufacturer.

Make Your Car Last

To make your car last as long as possible, maintain it regularly by following the directions in your car's service manual. You'll want to change the oil and filters, get transmission tune-ups and rotate your tires on a routine basis. Most cars can last up to 200,000 miles, according to MSN Money. Tuck away $50 a month, so you'll be prepared for a repair.

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Advice on How to Negotiate Low Car Payments

Your ability to get a payment you can afford determines whether you're able to buy a new automobile. The interest rate on the vehicle loan impacts the car payment, so getting a low payment involves acquiring a low rate. Several factors can help you get the best rate possible on your next auto loan.

Credit Risk

A bad credit history or low credit score means you're more likely to default on an automobile loan. While this may not stop you from getting a vehicle loan, low credit scores and higher interest rates go hand-in-hand. Getting a lower rate and a low car payment requires reducing your credit risk and improving your credit score. Timely debt payments and reducing debt can help bring up your FICO rating.

Down Payments

Down payments help bring down car payments in two ways. First, a down payment of 10 to 20 percent reduces the auto loan balance. Second, a down payment helps you negotiate a lower interest rate on the loan. If buying a car for $20,000, consider a 20 percent down payment of $4,000.

Shopping Around

Dealerships aren't the only potential providers of financing for your new vehicle loan. You have several options, including getting a loan from your bank or credit union. Dealerships are the middleman, and they often pad or increase interest rates to make money. Going directly to the bank can result in a cheaper rate and lower car payments.

Vehicle Loan Term

Financing a car for two or three years helps you pay off the vehicle more quickly. Unfortunately, a short finance term also increases the monthly payment. If you're interested in keeping payments low and affordable, negotiate a longer vehicle term. Five-year terms are typical, but some finance companies eagerly extend vehicle loans to six or seven years. Bear in mind that you'll pay more interest with a longer-loan term, which increases the total cost of the car.

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