What You Need for Leasing a Car

For many drivers, leasing represents an appealing alternative to buying a vehicle outright. With a lease you only keep the vehicle for a set length of time, after which you can choose to buy it outright or turn it in and find a new vehicle to buy or lease. Leases require much of the same information and paperwork as a car sale, as well as some new information about your driving habits.

Income

One of the most important things you need for leasing a car is a stable income. Just as when you finance an auto purchase, you become responsible for monthly payments once you sign your lease agreement. If your income falls or disappears due to job loss or other factors, you must still pay your monthly lease bill or risk losing your car to the lease company. Evaluate your budget to determine how much you can afford each month toward your auto lease.

Credit History

To get a lease you must also have a solid credit history. The interest rate you receive may depend on your credit score, but buyers with poor credit might not qualify for a lease at all. Your credit history tells the lease company, which is often not the same company as the dealership through which you make the deal, that you have a high likelihood of being able to make your lease payments based on your history of handling debt, your outstanding debts and the value of your savings and assets.

Mileage Prediction

Before you sign up for a lease, you'll need to know approximately how many miles you plan to drive annually. Every lease has a mileage allowance, though allowances vary from lease to lease. If you exceed the mileage allowance before your lease is over, the leasing company will charge an additional fee per mile over the limit unless you buy the car outright. A 12,000-mile annual allowance won't be enough if you expect to use the car to drive to and from work every day at a great distance, or if you plan to use it for long driving vacations every summer. In these cases, a 15,000-mile annual allowance will be more appropriate, even if it costs more up front.

Down Payment

You'll also make a down payment when you sign your lease agreement. Even though you may never own the vehicle outright, your down payment will reduce how much you owe over the term of the lease, resulting in lower monthly payments. Your down payment may also include the fees and tax on your lease deal so that you avoid paying interest on them altogether. Finally, some lease companies charge a security deposit to cover the cost of damage to the vehicle, which is also part of your initial down payment.

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Do I Owe the Remaining Money if My Repossessed Car Was Sold?

The fact that your car has been repossessed does not mean that your problems are over. When a company repossesses your car, the company is likely to end up pursuing you for more than just back payments. By understanding what will happen when your car sells, you can take steps to protect your financial interests.

Repossessed Car

When a company repossesses your car, you generally have a short period of time to catch up on the payments and redeem the car. The amount of time that you have to redeem the car will vary by state. For example, in Illinois you have 21 days to redeem the car and in California you have 15 days to redeem the car after receiving written notice that the finance company intends to sell the car. If you fail to redeem the repossessed car, the finance company will sell the car to recover the balance of the loan. Generally, the finance company will sell the car at auction, often receiving less than the retail value of the car.

Deficiency Balance

One the finance company sells the car, the company will apply the amount received from the sale toward the balance on the loan. In most cases, the car will not sell for enough to cover the loan. You will still legally owe the remaining balance, or deficiency balance, to the finance company. It is possible in some situations for the car to sell for more than the balance of the loan. In this scenario, the finance company will owe you the difference between what the car brought at auction and the balance of the loan.

Payment Arrangements

Once the finance company contacts you to inform you of a deficiency balance, you will need to make arrangements to pay the balance. A finance company may demand that you pay the entire balance in full, but most will work out a payment plan with you. If you fail to pay the deficiency balance, the finance company may take legal action against you to collect it. Lenders may forgive debt in some situations. However, if the lender forgives the debt, you may owe additional taxes because the IRS treats forgiven debt as taxable income.

Other Information

The finance company may incur various costs when repossessing and selling your car. For example, the company will likely have to pay fees to a repossession company and an auction company. In most cases, the finance company can legally charge you for these fees in addition to the deficiency balance. The laws and regulations regarding car repossessions and collections vary by state. For information on the laws in your state, contact your states attorney general.

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Can a Defaulted Car Loan Garnish a Salary?

Before purchasing an automobile, it is important to budget wisely and make sure you will be able to afford the monthly payments. However, sometimes unforeseen circumstances arise and without the adequate amount of emergency savings, you may be unable to continue making car payments. It is important to understand the effects of not being able to afford loan payments, including what can happen to your wages or salary.

Garnishment of Wages or Salary

When your employer garnishes your wages or salary, it withholds a certain percentage each pay period until the debt you owe is paid off. A garnishment can occur because of a failure to pay your taxes, child support, loans, court fines and credit card bills. The federal law permits a debtor to request that an employer garnish up to 25 percent of the employee's wages or salary. However, many states set the limit below this amount.

Requirements

For a lender or other entity, except the Internal Revenue Service, to require that the employer garnish your wages, it must obtain a court order stating that it is permissible. Often, it depends on the amount you owe as to whether the lender will sue you. For smaller amounts, it is often not cost-effective.

State Limits

Each state sets its own limit as to how much the employer is permitted to garnish for each pay period. This is generally a percentage of your pay. Some states, such as North and South Carolina, Texas and Pennsylvania, do not permit an employer to garnish your wages or salary except in cases where you owe the Internal Revenue Service. In these states, the lender or credit card company must pursue other avenues to obtain the money that you owe, such as repossessing your car.

Ways to Avoid Garnishment

Before buying a car, calculate your monthly income and expenses. Create a new budget that includes the added expense of a car payment and insurance increase. Determine how much you can afford to spend without a significant risk of default. Accumulate savings that equal at least three to six months of expenses so you can avoid defaulting on the loan if you lose your job, for example. In many cases, if an event occurs that leaves you unable to afford payments, speaking to the creditor can help avoid court proceedings and possible garnishment of your wages. This is an expensive avenue for the lender as well as the borrower.

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How to Refinance a Bad Credit Car Loan

Having bad credit may not be your fault, but when the time comes to look for a loan, that bad credit can hurt you tremendously. This method will help you refinance a high interest car loan into a lower interest car loan, even with less than perfect credit.

Instructions

1

Check the value of your car. If you owe more on the car than the car is actually worth you will not be able to refinance it. The reason for this is that in the event of a repossession, the bank would not be able to recover their money. (See resources section for KBB website)

2

Reread your original contract. The goal of refinancing is to get rid of those sky high interest payments. If, however, a "prepayment penalty" was written into your original loan you will not be able to refinance without refinancing the entire amount owed on the interest into the new loan amount.

3

Check your contract for scams. If you financed through a dealership, it is very possible you are paying extra every month for "perks" you did not know you had like roadside assistance or an extended warranty. Canceling these programs may free up enough money to make refinancing not necessary.

4

Start working on your credit. Making regular payments on your car improves your credit every month. Try to dispute off some negative payments, or have some old late notations removed. You don't have to have perfect credit, but this cannot be attempted with abysmal credit.

5

Wait 6 months from the original purchase. You cannot refinance an auto loan until 6 months or longer have passed from when you bought the vehicle. This gives you time to get to work on your credit.

6

Pull your credit score. When enough time has passed to refinance, pull your credit score to see what you have to work with. Always know your own buying power.

7

Start shopping around for a low interest auto loan. Do not apply yet, since you do not want anyone to pull your credit themselves. Give them your score and let them tell you the rates you qualify for.

8

Choose the bank or credit union with the lowest rates and refinance the vehicle for lower monthly payments.

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What to Look for in Buying a Used Car

Buying a used car can save you a substantial amount of money compared with buying a new car. When you buy a used car, you have to be careful to make sure that you get a quality vehicle. Before buying a used car, a few factors should be evaluated.

Vehicle History Report

Before buying a used car, you should get a copy of the vehicle history report. A vehicle history report lists all of the major events that have affected a car. For example, if the car has ever been in a wreck, you can find out by reading the report. If the car has ever had any major repairs or overhauls, you can also find out this information through the vehicle report. You can look up the report using the vehicle's VIN number.

Body Damage

If you do not have access to the vehicle report, you may not know if the car has ever been in a wreck. When a car has been in a serious wreck, it can significantly affect the way that it drives. One way to tell if a car has been in a wreck is to look for damage on the outside of the body. In some cases, it may simply be a small dent, while in other cases, it could be hiding bigger problems. If the front of the car looks damaged in any way, it can lead to serious driving issues.

Under the Hood

Under the hood of the car, you will find several clues that can tell you whether this would be a quality vehicle to buy. Look under the hood and inspect the engine. You need to check the oil, the transmission fluid and the general condition of the engine itself. If you do not know anything about engines or cars, do not hesitate to hire a mechanic to take a look at it for you.

Test Drive

Before buying a used car, you need to take it for a test drive. A test drive will give you a good idea of how the car runs. If the car has any serious mechanical issues, you can sometimes find them during a test drive. If you have trouble getting the car started or it does not drive smoothly, you may want to avoid purchasing the car.

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What Is Gap Insurance When Leasing a New Van?

The purchase of gap insurance when leasing a new vehicle, such as a van, should be seriously considered. Gap insurance is a supplement to regular vehicle insurance to protect the lessee against a significant financial loss. Gap insurance is supplemental to the regular insurance on a leased van.

Gap Insurance

Gap insurance is an additional insurance policy that pays the difference, or gap, between what the regular insurance pays and the payoff on the van lease if the van is demolished in an accident or stolen. Payments on a lease contract reduce the pay off amount of the lease at a very slow rate. If the van is totaled there may be a significant difference between what insurance pays and the cost to pay off the lease contract.

Upside Down

A new van will depreciate as soon as it is taken off the dealer's lot and will continue to decline in value. The Bankrate.com website notes the average vehicle will lose 30 percent of its value in the first year. A lease contract is usually entered with a low or no down payment, providing no equity cushion to cover the inevitable depreciation. The result is a van that is worth significantly less than the pay off of the finance contract if the contract must be terminated early. This situation is called being "upside down" in the vehicle and can be thousands of dollars.

Regular Vehicle Insurance and Gap

Regular vehicle insurance will only pay the market or replacement value if the vehicle is demolished in an accident. When the van is lost by accident or theft, the lease contract will have to be paid off. The insurance amount will usually not be enough to pay the contract, leaving the balance to be paid by the van lessee. A gap insurance policy will pay the difference the regular insurance does not pay, including the deductible amount on the vehicle insurance.

Buying Gap Insurance

Gap insurance is usually bought at the dealership when the lease contract is completed. The dealer finance department will offer the gap insurance and be able to roll the cost into the lease payment. It is also possible to buy the gap insurance from an outside or online vendor. This insurance can be purchased after the lease contract is in effect. It may be a good idea to get a price on gap insurance before going to the dealer and use that information to negotiate a competitive price for the insurance from the dealership.

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How to Make a Contract for the Sale of a Car

If you've ever purchased a car from a dealer, you might recall signing a number of documents. The dealer drew these papers up as a way to protect himself in the event you should return with a complaint or disagreement over terms of the sale. When you sell a car you should do the same thing. Your document doesn't have to be pages long, but it should include details of the sale.

Instructions

1

Include the basics. State your name and address as well as the name and address of the buyer. Include the date and time. Including the time will protect you in the event the buyer takes the car for inspection after the sale and claims that he took it prior to signing the contract and that you made side deals with him orally.

2

Make it easy on the Department of Motor Vehicles (DMV). Clearly state the make, model, year and vehicle identification number. Also, include the mileage at the time of purchase.

3

Be honest about the price. Your contract should include the price that was actually paid for the car. A buyer will sometimes ask you to state a lower sales price so that his tax obligation is lower. As tempting as it might be to do so, it could hurt you in the longrun. If you're selling the car on a payment plan you will have no way to prove to a court how much the buyer actually agreed to pay if she stops paying. Even if you receive full payment for the car at the time of purchase, your credibility could come into question if the buyer later chooses to take you to small claims court for any reason.

4

Make a copy of the Bill of Sale and make sure that both parties sign each copy. Keep one for your records. The buyer will take his to the DMV along with title to the car to purchase tags.

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