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#302 Car financing

mp3 #302 Financing when you buy a car (mp3 file)

You can save a great deal more than you may realize on another major expense of car buying - financing or borrowing money.

Auto loans are commonly 36 months for a new car and 24 months for a used car. Lending institutions have increased the time of auto loans and many give 60 months for new car loans.

The amount of down payment required by the lender varies from covering tax and licensing fees up to 20% of the loan. Cash down payments, pending a dealer assisted loan, are refundable. A down payment in the form of a trade-in is not refundable for five days. When making a down payment, write on the contract that the down payment is refundable if credit is not approved.

Your car will be security for the loan, and the lending institution will keep your pink slip (auto ownership) until the car is paid off. Should you fail to keep up the payments, the lending institution will repossess the car. The lender doesn't have to notify you ahead of time; the law only requires that you be notified after your car is repossessed. The car will be sold and the money received will be applied to the loan and collection costs. If the car is sold for less than you owe the lender, you are personally responsible for the difference. This is known as a deficiency judgment.

An auto loan is usually easy to obtain because the financing institution can give you a loan, take back the car if you fail to make payments, and still hold you responsible for any balance due on the loan. You are entitled to any money the lender gets in excess of the loan, but once the collection costs are taken out you probably still owe money.

If you are in a situation where you can't make the payments, don't turn the car over to the lender -- it counts as a repossession on your credit record. Try to sell the car for at least the loan balance. If the new buyer wants to take over payments, try to get the lender to substitute the new buyer for you on the loan. If you don't, you are taking the chance the new buyer will skip town leaving you with payments and no car. Also, notify the California Department of Motor vehicles of the sale.

Lenders want to protect their security interest in the car and you'll usually find a paragraph in your loan agreement that requires you to buy collision and/or comprehensive insurance to cover the car. If you are in an accident, the car will be repaired after payment of a deductible. The larger the deductible, the cheaper the insurance.

If you fail to buy insurance, the lender has the right to add on its own insurance and bill you for it later. Insurance purchased by the lender is usually more expensive and has less coverage than insurance you could purchase on your own. The protection is for the car itself, not you. Of course, if the accident is the other driver's fault, his insurance company will pay for your car's repairs.

Sometimes a lender may ask if you want the insurance included with your payments. You can refuse and get your own insurance. If you take the insurance as part of the car payments, the finance charge will increase to reflect the additional amount that is financed.

You usually will be able to obtain a better interest rate from a credit union than a bank, and a bank will be better than a finance company. Any of these will usually be better than the dealer itself. Interest rates vary, and on a major purchase, such as a car, call several places and ask about rates. If you obtain a loan through dealer assistance, make sure it is not a higher interest rate than you could get at your neighborhood bank.

If something goes wrong with the deal, you can get your attorney’s fees paid, if you take the dealer to court and win. But be careful---you must pay the dealer’s attorney if you lose. You can also sue the car dealer in the court in the county where you live. This is especially important to buyers who are attached to dealers in a far away place in the countryside who "sell cheaper because of low overhead or in the city where "cars are cheaper through volume selling."

The dealer's contract must show:

(1) An item-by-item listing of the car's cost and accessories.

(2) Charges for such things as taxes, freight, dealer preparation, insurance, license fees or any other fees associated with the transaction.

(3) The down payment separated into trade-in allowance and cash.

(4) The unpaid balance.

(5) The amount of finance charges.

If this information is not given to you and you feel you have been dealt with in an unfair or deceptive manner, complain to the seller. If you are unable to resolve the complaint with the seller/contact your local office of the department of motor vehicles.

Under the federal truth-in-lending law, the credit contract should contain:

The amount financed -- the total amount of credit extended.

The finance charge - the sum of interest in dollars plus any other finance charges.

The total amount of payments -- the total of items 1 and 2

The terms of payment -- the number of payments required.

The annual percentage rate -- the rate of the finance charge. This rate is the simplest and best method of comparing the cost of credit.

You will be given a copy of a document containing all of this information and more. Be sure to read this document before you sign. In California, if the sales pitch has been made in Spanish, the contract must be in Spanish also. If you don't understand how the creditor has computed the "amount financed" or "finance charge," ask the creditor to explain each of the components. Do not sign until you are satisfied that you actually need each item for which you are being charged. Also look over the other credit terms. You should know whether the contract has an "acceleration clause" that makes all payments due at once if you fail to make any payments on time. Ask if you have to pay penalty charges if you repay the loan more rapidly than you had planned.

If you suspect a dealer, finance company, or a small loan company of violating the federal truth-in-lending law, call or write the nearest regional office of the federal trade commission.

If you have any reason to believe that your bank is not clearly spelling out full details on the loan you are negotiating, and if it is a national bank, check with the comptroller of currency, United States department of the treasury by calling 1-800-613-6743. You may also write to their customer assistance group at 1301 McKinney Street, Suite 3450, Houston, TX 77010. Or you may also fax a letter to 713-336-4301 or visit their website at

If it is a state-chartered bank which is a member of the Federal Reserve System, get in touch with the truth-in-lending officer of the Federal Reserve Bank in the city closest to you. Check in your phone book under "U.S. government."

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