The Best Way to Pay Off a Car Loan

Auto loans are a necessary part of life for most people, but when interest charges add up over the life of a loan, the total cost can be expensive. For example, $15,000 borrowed for four years at 8 percent interest results in a total interest cost of $2,577.12.

The best way to pay off a car loan depends on your circumstances, but use a few simple tips to pay off your loan early and save some of that interest.

Pay Twice Each Month

Split your payment in half and make two payments to your car loan every month, but be sure to make both payments before the monthly due date. Splitting payments is beneficial if you have a simple interest loan, but not if you have a precomputed loan, so check your paperwork.

Simple interest loans include only the principle amount of the loan. Interest is calculated from payment date to payment date, and is subtracted from each payment, leaving the rest of your payment to be applied to principle. If your loan payment of $300 is due on the 30th of the month, pay $150 on the 15th. That amount will pay the interest accrued from the 1st to the 15th, and will decrease your loan principle by the remainder. This is important because interest due from the 15th to the 30th will be calculated based on a lower principle amount.

Precomputed loans include the loan's principle plus all interest due over the life of the loan. Paying the full payment amount each month, whether in one payment or two, will not decrease the loan balance any faster.

Increase Your Payment

Add an additional amount to your payment every month. Whether you have a simple interest or precomputed car loan, increasing your payment will help you pay your loan off faster, saving you interest.

With simple interest loans, the lender first takes the amount of interest due from your payment, then applies the rest to principle. If your payment is $300 and you owe $50 interest this month, the lender will reduce your principle by $250. If you pay $325, the lender reduces your principle by $275, paying off your loan faster.

If you have a precomputed loan and make higher payments every month, you will pay your loan off early. The lender will owe you a refund on the amount of interest they have collected but have not earned. The state of Indiana recommends that you contact your lender to ensure they return the unearned interest to you.

Make Extra Payments

Make an extra payment once or twice each year. Under simple interest car loans, you'll reduce the principle faster, reducing the amount of interest you pay. Under precomputed loans, you'll pay off your loan early and be entitled to a refund of unearned interest from your lender.

Read More

Is it Possible to Get a Car Loan Without a Full-Time Job?

Even a used car can deflate your wallet or bank account by thousands of dollars. When you don't have that kind of money immediately available, car loans can get you into the ride of your choice. Your employment status may, however, affect whether your loan application goes through.

Lender Variance

Whether you need a job to get a car loan depends on the lender. Some lenders are willing to work with you even if you're unemployed. Others make employment a condition of financing, because a job translates into income that makes it more likely you'll pay off the debt. This doesn't mean you can't get a car loan if you're unemployed, but it does mean you'll have to shop around a little to find the right lender.

Credit

Your employment history is just one point a lender may use to approve your car loan application. They also look at your credit. If you aren't employed but have prime credit -- generally a score of at least 700 -- the lender will take your history of paying previous debts into account.

Debt-to-Income Ratio

Like credit, your debt-to-income ratio is another piece of the loan-approval puzzle. This is the amount of debt you have divided by the amount of money you are bringing into your household. If you are unemployed but have few or no other debts, creditors view you more favorably than if other creditors, lenders and vendors already get a large percentage of your money. For this reason, the lower your debt-to-income ratio, the more likely it is you can get the auto loan you need.

Down Payments and Cosigners

Lenders may take you more seriously about the auto loan if you're able to make a down payment. The Carsdirect website indicates that some lenders require a down payment of at least 30 percent if you have no job. Getting a cosigner is another way to increase the odds of approval. In the event you default, the lender can go to the cosigner to get what you owe.

The Bottom Line

When applying for a car loan, your employment really isn't the issue. Your ability to repay the loan is. As long as you can demonstrate you are financially capable of meeting your debt obligations without a job, the lender likely will approve you. Approach the loan officer like an entrepreneur when you apply. This means going into the loan office with documentation that verifies your financial situation and a written repayment plan.

Read More

How to Negotiate Your Car Payment When Unemployed

Vehicle repossession doesn't always benefit creditors' interests and ranks as a last resort because of the considerable expense involved. When unemployment strikes and you find yourself struggling to make your car payments, make your plight known to the lender as soon as possible. Then, negotiate arrangements, such as deferment or extension, that allow you to continue ownership of the car and keep your loan-holder satisfied.

Instructions

1

Write down a list of payments you must make, such as your home mortgage or rent, utilities and food. Calculate how much money you have today and how much you expect within the next two weeks. This helps you understand the amount of money you have at your disposal for car payments.

2

Call your lender and explain your situation to a representative. Answer the representative's questions, such as the predicted duration of your financial difficulties and what amount you can pay toward the loan right now. If you plan to route your money to other expenses, tell the representative that you can't make the current payment due.

3

Ask the representative about an extension, which involves pushing back the payment from a few days to several weeks. Or ask about deferment of payments, when the lender tacks the payments onto the end of your loan, giving you some breathing room for a couple of months. During the extension or deferment phase, you can look for other employment or file for unemployment, or both.

4

Ask to modify the terms of your current loan if the amount of the payment prohibits you from paying it in full. If the lender extends your loan from 12 to 18 months, your monthly payment will drop.

5

Request that the lender waive any late charges incurred -- if applicable -- so you can avoid extra expenses.

Read More

Do Auto Lease Payments Include Sales Tax?

Auto lease payments do include sales tax. The tax charged on each lease payment is calculated relative to the monthly pre-tax lease payment. While lease payments do include sales tax, however, auto manufacturers and dealerships do not include tax in their advertised lease payments. As a result, visiting a dealership and getting a lease quote can be surprising when the lease payments are higher than advertised. Understanding how tax is applied to car lease payments can help you estimate your lease payments before visiting a dealership.

Tax Amount

The amount of tax that must be paid on an auto lease is based on the total depreciation of the vehicle over the term of the lease. For example, if a vehicle has an MSRP of $20,000 and a 50 percent residual value, the lease end value of the vehicle is $10,000. If you negotiate a selling price of $19,000, the total depreciation over the lease term is the difference between the selling price and the residual value. In this case, the amount is $9,000. You would pay your local tax rate on the $9,000 difference.

Application

Auto lease sales tax is applied on a monthly basis to the base payment, which is the equal to the monthly depreciation plus finance charges. For example, if your base monthly payment inclusive of depreciation and finance charges is $275 and your local tax rate is 7 percent, the monthly tax on your auto lease is $19.25. In turn, your total monthly payment is $294.25.

Buying Out Your Lease

In the event you like your leased car so much you want to buy it out and keep it, there are some unique tax considerations to ponder. During the term of the lease, you have paid sales tax on only the monthly depreciation of the vehicle, not its full value. When you buy out your lease, you must pay sales tax on the residual value or buyout price that you are paying for the car or truck. This is an often point of confusion for consumers who buy out their leases and think the dealership is falsifying the numbers.

Taxes and Down Payments

In the event you make a down payment on your lease, you must pay sales tax on the capitalized cost reduction at the time you start the lease. Capitalized cost reduction is money that is put down at the start of the lease term to lower the selling price of the vehicle and, in turn, lower your monthly lease payment. However, in the long run, there is no difference in the total tax paid out over the lease term.

Read More

Can You Refinance a Hybrid and Still Receive the Tax Credit?

The Energy Policy Act of 2005 established a taxpayer credit for certain fuel-efficient vehicles such as hybrid cars that were purchased or put into service between January 1, 2006 and December 31, 2010. To qualify for the credit, you must be the original purchaser of a qualifying vehicle, and you must have purchased the vehicle for your use from 2006 to 2010. In addition to these, there are several other requirements.

Manufacturer's Certification

A certain vehicle make and model is eligible for the tax credit only if fewer than 60,000 cars were sold or if less than two calendar quarters passed since 60,000 cars were sold. Check with the auto manufacturer and obtain a certification that the vehicle you purchased qualifies for the tax credit to begin with, then meets these stipulations regarding sales numbers.

Date Requirement

To qualify for the tax credit, the vehicle must have been placed in service on or after January 1, 2006 and purchased prior to January 1, 2011. If the car was not purchased and put into service during these dates, it is not eligible for the tax credit, regardless of whether it fulfills other eligibility requirements.

Ownership Requirement

The taxpayer claiming the credit must be the original purchaser of the vehicle. Even if you refinance, as long as you are the original purchaser and you meet the other eligibility requirements, you qualify for the tax credit. The credit, however, does not apply to the purchase of a used hybrid car.

Purpose and Use Requirement

The vehicle must be purchased for use by the taxpayer claiming the credit. It must be placed into service and used primarily in the United States.

Assigning the Tax Credit

If you leased, rather than purchased, a qualifying vehicle, the leasing company is eligible to claim the credit, but can optionally pass it along to you as the lessee. If you are tax-exempt and purchased a qualifying vehicle, the seller can take the tax credit as long as the amount of the credit is clearly disclosed to you as a tax-exempt purchaser.

Read More

The Cons of Leasing a Vehicle

Leasing a vehicle is one way to acquire a new car. A lease involves making a down payment as well as a monthly payment. Leasing allows the driver to buy the car at the end of the lease term for an agreed-upon price that's listed in the original lease document. Drivers also have the option of surrendering the lease and shopping for a new vehicle.

Overall Cost

Leasing a car costs more than buying in the long term. Buying a car means that once it's paid off, the driver goes without a monthly payment and gets more value out of the car the longer she continues to drive it. With a lease, the driver is always liable for a monthly payment. The buyout amount at the end of a lease almost always represents more than the car's fair market value, which means buying a vehicle at the end of a lease costs more than buying a similar model on the open market or buying the same vehicle at the outset.

Mileage Limits

Each lease includes an annual mileage limit for the vehicle. This is typically 12,000 or 15,000 miles per year, though some dealers allow drivers to pay more for an additional mileage allowance. The presence of a mileage limit may discourage drivers from using the car often or for longer trips, especially if the mileage is approaching the limit prior to the end of the lease term.

Fees

Leases contain numerous fees and penalties that may apply to some drivers. Terminating a lease early may require paying an early-return fee, which can be in the thousands of dollars. Dealers also charge drivers for exceeding the mileage limits on a lease. Drivers are also liable for damage to the car beyond normal wear and tear, which can make turning in a leased vehicle expensive.

Lack of Equity

Drivers who lease never build up any equity in their vehicles. This is the opposite of drivers who buy a car and have the option of selling it or trading it in at some point in the future. At the end of a lease, a driver is left with no vehicle and no equity, and must begin the process all over again.

Customizing the Vehicle

Most leases prohibit drivers from making any major or permanent alterations to the vehicle. This means that a driver can't perform any customization projects such as adding a premium audio system, installing an in-dash GPS device, getting a custom paint job or upgrading the wheels. Drivers who want greater control of their vehicle might be better off buying a car, even if it means only being able to afford a used model.

Read More

How to Finance a Salvage Title Vehicle

A salvage title -- referred to as a "rebuilt" title in some states -- indicates that a vehicle was wrecked, totaled out by the previous owner's insurance company and subsequently rebuilt. As a rule, banks are hesitant to finance vehicles that carry salvage titles. A salvage title decreases a vehicle's value. In the event you stop paying your auto loan and the bank has to repossess the car, the fact that the car has a salvage title could make recovering the defaulted loan balance difficult -- if not impossible -- for the bank. Although locating financing for a vehicle with a salvage title may require a bit more work than if the car boasted a clear title, some lenders will provide financing for rebuilt cars.

Instructions

1

Visit your own bank first and talk to a loan officer about financing a vehicle with a salvage title. If you're a longstanding customer with a good history of repaying loans and credit cards on time, your bank may make an exception for you and provide financing for a vehicle with a salvage title.

2

Call around to other banks and credit unions in the area if your own bank will not work with you. Ask each customer service representative you speak with about that financial institution's guidelines for financing vehicles with salvage titles. While most banks and credit unions will not finance a salvage car, some will.

3

Offer alternate collateral for your auto loan. Most banks' hesitancy stems from their inability to recover losses if you default on the auto loan. Providing the bank with collateral other than just the car, such as stocks or real estate, lowers the lender's risk -- making an auto loan on a car with a salvage title a real possibility.

4

Ask the dealership where you plan to purchase the car for help securing financing. Many car dealerships have in-house financing departments and can help you locate a lender willing to work with you. Even if the dealership does not typically finance cars with salvage titles, it may make an exception for you in order to make the sale.

5

Take out a private auto loan from a friend or family member. Friends and family are generally less concerned with a vehicle's value than commercial lenders. If your loved ones trust that you will repay the loan, the fact that the car carries a salvage title isn't likely to matter.

Read More