Problems When Buying a Car

Buying a car can be an act of necessity or a symbol of freedom. Whatever your situation, buying a car is likely complicated by a number of factors that can all have very real impacts on how much you pay, how safe you are and whether you end up regretting your decision.

Cost

Cost is one of the biggest problems that buying a car involves. Other than the car's cost, you need to add in the cost of fuel, maintenance, registration and inspections. There's also the decision of whether to pay cash, finance or lease. A lease allows you to have a new car every few years for less than the price of buying, but you never build up equity, and the cost to buy your vehicle once the lease ends is usually more than it's worth. Financing means your cost will depend upon the size of your down payment, the price you negotiate and the interest rate a lender offers. Dealership promotions and manufacturer rebates all play into the car buying process and can serve as tools to get the best deal possible.

Choosing a Car

Selecting an appropriate car for your needs is another problem. Your budget may limit you to a certain type of car, such as a used car of a certain age. Even so, you'll need to select between styles such as trucks, SUVs, compact cars, sedans and sports cars. If you have a family, the car's safety rating is likely a top priority. Reliability ratings, the likelihood of theft and the presence of convenience features all play into your ultimate decision. If you can't find a car that meets your expectations, you can either wait or compromise in one or more areas, which means you need a sense of what is most important in a car.

The Environment

With many alternative fuel vehicles on the market, both as new and used models, car buyers at all price points can take the environment into consideration. Choosing a car with a good environmental record complicates the decision-making process, but it can also mean lower fuel costs while you own the car and a higher resale value in the future. Even among cars with conventional engines, technologies such as displacement-on-demand and advanced aerodynamics give some vehicles a much higher efficiency rating than others in the same class. The Environmental Protection Agency and independent automotive publications list environmental records for buyers to use in their research.

Insurance

Every state makes it a law for drivers to have some form of car insurance or financial protection. You may be able to purchase temporary insurance to drive home from the dealership, but part of the car buying process is getting an insurance package you can afford that offers adequate coverage. With a new vehicle, optional coverages such as collision and comprehensive are especially important, and may be required if you finance your car. Buying insurance at your state's minimum levels or with a high deductible will save you money, but might not cover you in full if you cause an accident. Compare rates from different companies and look into discounts that an insurance company offers to find the best coverage for the best price.

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Can You Trade in a Vehicle Under Repo Status?

When you get behind on your auto loan payments, it is only a matter of time until repossession becomes a very real possibility. If you are faced with this scenario, you may try to trade the car in at a dealership for another vehicle. In most cases, this option will not work and the car will be repossessed.

Trading Car With Loan

The primary reason that this will not usually work is because you still owe money on the car. When you try to trade in a car that you owe money on with a dealer, the dealer will have to pay off your loan for you to make the process work. The amount you still owe is then added to the amount that you borrow on the new vehicle. If you owe money, the dealer will have to contact your lender and will then find out that the car is in repo status.

Getting a New Loan

When you trade in your old vehicle, unless you have enough money to pay cash, you will have to finance the new vehicle purchase. If you are in a situation where your current vehicle is about to be repossessed, you most likely do not have enough cash sitting around to pay for a new car. In this case, you will have to depend on the lender to still give you a loan for the car even after it finds out that you are in default on your current loan.

Working Out Solution

Your main hope in this scenario is that the dealer you are working with wants to work with you even though the repo is in process. If you can find a dealer that desperately wants to make a sale, it may be able to work out an arrangement with your auto lender to stop the repo. For example, if the auto dealer will pay off the loan for you, this could stop the repo and help you get another car. It may be difficult to get a dealer to do this for you, since the dealer will see that you have financial troubles.

Alert the Repo Agent

The worst-case scenario in this process is that the dealer could alert the lender of your whereabouts. If you have successfully evaded the repo man up until this point, the lender will be looking for you. When the dealer calls the lender to inquire about the loan balance, the lender will know where you are. If the dealer cannot work out a deal on your behalf, then the repo man might come take your car on the spot.

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Missouri Lemon Law on Used Car Purchases

If you buy a defective used car in Missouri, you are probably out of luck. The Missouri lemon law, modeled after a federal law to protect consumers from defective goods sold under warranties, does not apply to used cars. Take extra precautions when buying a used car in the state to avoid being stuck with a lemon.

The Law

The Missouri New Vehicles Warranty Law, commonly called the lemon law, is frequently mistaken as blanket protection for all vehicle purchases. The state attorney general's office emphasizes on its Web site that the law does not apply to used cars. Instead, the law applies to all new vehicles sold or leased under warranty that are found to have irreparable defects. The law requires consumers to document all repair attempts in writing and to prove that the car has been in the repair shop four or more times with the same problem without resolution or that a problem covered by the warranty has caused the car to be out of service for 30 or more working days since delivery, according to the attorney general's office.

Used Cars Sold "As Is"

Dealers selling used cars are required by the Federal Trade Commission to display a buyer's guide in the car window clearly stating whether the car will be sold as is, with no warranty, or with a warranty. If the box next to "as is" is checked, you will be responsible for all repairs after you drive the car off the lot, regardless of whether the dealer made false claims to you about the condition of the car. Cars sold by private individuals do not have to display a buyer's guide and are generally sold as is, according to the Missouri attorney general's office.

Used Cars Sold Under Warranty

The state lemon law won't protect you even if you buy a used car under warranty, but a warranty should ensure that you'll be compensated for some of the costs of repairs if the car is defective. The Missouri attorney general's office recommends getting the terms of the dealer's warranty in writing. Some dealers will only pay for specified repairs, while others will cover the car from bumper to bumper for a set period. Determine whether the car is still covered by the manufacturer's warranty. The lemon law ceases to be in effect as soon as the car changes hands, regardless of the warranty status, but the manufacturer's warranty remains in effect.

Federal Protection

The federal lemon law, called the Magnuson-Moss Warranty Act, may cover some defective vehicles that aren't covered by Missouri law. Used-car owners who can't file claims under the state law can file claims under the federal one as long as the the problem emerged while the car was still under the original warranty.

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Questions to Ask Before Buying a Used Car

It is important to test both the seller and the used car prior to signing any documents or buying a car from someone or a dealership. Individuals interested in used vehicles should try to find out as much information about the vehicle and the seller as possible. Potential buyers should ask several questions prior to seeing the car; this will eliminate some cars without having to leave your home. The questions are relevant for personal sellers as well as dealerships.

Reason for Sale

When buying a used car, the first question buyers should ask the seller is, "Why are you selling the vehicle?" It is important to understand the intent of sale to get a feel for both the car and the seller. There are many answers to this question; some sellers may be bluntly honest and answer, "because it is a piece of junk," or "it's a gas guzzler." However, most sellers might try to hide negative information to get a sale, so watch for nervousness. Normal reasons to sell a car include the recent purchase of a new car or getting rid of an old car that is no longer needed.

Miles on the Odometer

Ask how many miles are on the car. The number of miles on the odometer will give a pretty good estimate of how much the car is worth. This piece of information will come in handy during the negotiation process. Check an online pricing tool, like the Kelley Blue Book or Edmunds website (see Resources), to get an estimate of value based on the year, make, model and mileage of the car. Also, check the odometer and test it out to be sure it is properly functioning.

Car Condition

No individuals should purchase a car without asking, "What is the vehicle's condition?" This valuable question should give insight as to what types of problems have affected the car. Ask specific follow-up questions regarding the car's structural and mechanical condition, as well as accident and repair history. Always inspect the vehicle to be sure the seller is being honest, and walk away from any sale that feels wrong or any seller that seems to be misleading you.

Original Owner

It is also important to find out where the car came from and number of previous owners. Ideally, a car that has only one previous owner is preferred. This question will also help get to the bottom of other key question that should be asked prior to purchasing a used vehicle. If the seller is not the original owner, this individual probably does not have the proper answers to other questions about the vehicle history. Buyers should also find out the date and place the seller purchased the car.

Accident History

Finding out if the used car has been in previous accidents will give insight at potential issues down the road. Vehicles with an accident history are also worth less. Inspect the car to make sure the seller is being honest and truly knows the car's accident history. You can also run a vehicle report online with the car's VIN number. In any case of dishonesty, walk away from the sale.

Service Records

Service records give insight into the type of sellers and car owners that have previously driven the car. An individual who is meticulous enough to keep good track of the vehicle service records will be meticulous enough to take good care of the vehicle. Ensure the car has been kept up in terms of all recommended service and maintenance.

Cost

Last but definitely not least, it is important to find out how much the seller is asking for the used vehicle. It never hurts to make a lower offer to try to negotiate a lower price. Walk away if the car is over your budget and the seller will not come down on the price. Also, ask to take it for a test drive, and ask if the seller is willing to let you take it to get inspected independently. It is a good sign if the seller agrees.

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Why Is There a Down Payment When Leasing a Car?

Lease advertisements usually call for a down payment in addition to taxes and fees. You do not have to put anything down toward a lease besides your first payment; however, your monthly payment will then increase. Most lease advertisements assume the cheapest payment. Consider adjusting your down payment amount, but be sure to watch your budget.

Interest Rates

Some banks adjust the lease interest rate depending on the total amount purchased or paid. For example, your lease might warrant a 5 percent interest rate assuming that you do not exceed 50 percent of the vehicle's lease value. In this event, the rate may jump to 6.5 percent if you don't reach the correct threshold. While you don't have to provide the suggested down payment, your interest rate may change and increase your monthly payment.

Work With Your Dealer

Leases are complicated; residuals, rates and vehicle depreciation values are determined by the leasing bank and often change monthly. While you can attempt to figure the lease payments and adjustments on your own, asking a dealer to help you reach your targeted payment is beneficial. Dealers use a computerized system to figure out lease payments. You can also roll the down payment, taxes and fees into your lease. Work with the dealer if you want to adjust the down payment amount, the term or the mileage.

Budget Your Payment

Unless you plan to provide the lease advertisement's down payment requirement, your lease payment may increase significantly. Every $1,000 that you take away from the advertised down payment requirement should reflect about a $30 difference in the monthly payment. For example, if you decide to roll in $3,000 that the lease originally called for as a down payment, you may see a $90 increase in monthly payment. Negotiate the price of the vehicle to help offset the amount of your down payment.

Down Payment Considerations

Putting down a down payment toward a lease is inadvisable. Leasing banks require that you carry a full-coverage insurance policy on the vehicle throughout the term of the lease. Because the vehicle belongs to the bank, you will not receive an insurance payoff if your car becomes a loss. Your leasing bank is the loss-payee listed on your insurance policy. Even if you pay your entire lease upfront, which may prove as much as 50 percent of the vehicle's value, you won't receive any of that money back if the car is declared a loss by your insurance company.

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How Do Car Payments Work?

Understanding how car payments work can prevent you from getting into debt over your head by taking on a bigger auto loan than you can afford. Your interest charges, down payment, the length of your loan term and the purchase price all affect how much you pay each month on an auto loan.

Payment Distribution

Your monthly car payment pays off your auto loan in two parts. A percentage of your payment goes toward the interest charge, which is the amount lenders charge borrowers to use their money to pay for cars or other things. The other part of your payment is applied to the principal, which is the amount of money you borrowed to pay for your vehicle. Borrowers usually pay car loans over 36, 48 or 60 months. The longer you take to repay your loan, the more it costs, because you pay more interest charges over a longer period.

Principal and Interest

The total amount of your monthly car payment generally remains the same, but your principal and interest payments fluctuate. Most of your payment goes toward interest charges when your loan is new. However, your principal also decreases with each payment, so the amount you pay in interest charges drops over time due to a lower loan balance. As a result, you pay more of the principal and less interest as your car loan ages.

Down Payments

The size of your down payment affects the overall cost of your loan. Some auto lenders dont require a down payment from people who have excellent credit ratings. However, paying down as much of the purchase price as possible and getting a loan to cover the remaining balance may prevent you from being upside-down in your auto loan. Borrowers are upside-down in a car loan when they owe more on their vehicle than its worth. Cars usually drop in value shortly after purchase, so a bigger down payment can prevent you from owing more than your vehicle is worth as its value drops.

Loan Term

A short-term loan of 36 to 48 months comes with higher monthly payments. However, paying off a loan as quickly as possible also can prevent upside-down loan problems. For example, your auto insurer will only pay you an amount equal to the value of your car if its totaled in a traffic accident. Thats less of a problem if your vehicle is mostly paid off at the time of the accident. However, a long-term loan could leave you upside-down in a loan if you have to continue to pay off a vehicle you can no longer use after an accident.

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How to Refinance a Car After a Bankruptcy

Refinancing a car after bankruptcy is a smart way to reduce expenditures and reach a more manageable budget. However, filing for bankruptcy adversely impacted your credit score, creating an issue when refinancing, because lenders use your credit score to calculate the risk they assume in working with you. To get the best deal, you must show your lender you can handle the financial responsibility of the new loan. Acquiring evidence of your ability to pay takes time.

Instructions

1

Find someone with decent-to-excellent credit willing to cosign for you. A cosigner obligates multiple parties to pay, which increases the odds the lender will receive what you owe. For this reason, lenders may work with you and a cosigner, even when your personal credit is less than stellar.

2

Do everything you can to improve your credit score. Be ruthless about paying all your bills on time for at least six months. Get your credit report from one of the three major credit bureaus (Experian, TransUnion and Equifax) and correct any discrepancies. Expect corrections to take up to two months as creditors and the credit bureaus work to verify report accuracy. Don't apply for refinancing until your score is at least 600, and don't expect zero percent financing. Most lenders will not offer those terms unless your score is 750 or above, and that is difficult to achieve with a bankruptcy on your record. A copy of your own credit score is a powerful advantage during refinancing because your lender will need to explain discrepancies if the credit score from the reporting agency is significantly different than the one you obtained.

3

Start a savings account. In addition to your credit score, auto lenders look at your assets in determining whether you can repay a loan. A little money in the bank helps you look more attractive to a lender, especially if you can show consistent deposits.

4

Have your cosigner also document income and get a credit report. This will help bolster your case.

5

Call your lender or new lenders you want to try. Ask whether you can refinance based on the dealer invoice value or trade-in value. Also ask the minimum credit score required for refinancing, the name of the lender's credit reporting agency and the percentage of the value the institution is willing to lend. Compare rates and fees.

6

Go with your cosigner to the lender who can offer you the best refinancing option. Verify the rates you were quoted are indeed the best you can get. It may help to provide documentation of the vehicle's current value, but the lender will care more about how much you still owe on your initial loan. Negotiate with the lending officer and apply for the new loan.

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