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Do I owe money on a car I bought and then turned back in to the dealership?
Interest rates are almost guaranteed to go up before the year is over. How will that increase impact you and your money?
Having you been thinking about buying a new car? Is your old car letting you down, but you're holding out "just one more year"? When is it time to finally give up on your old car?
A vehicle is the most important and expensive piece of machinery most people own. Protecting your investment and keeping the cost of car ownership down can be easy if you perform regular maintenance and safety check-ups.
Of all the major purchases people make in their lives, few are more based on emotion than buying a car.
While I am all for helping the economy and the environment, the awesome thing about a clunker is that is (hopefully!) paid for in full. If you are one of the more than six hundred thousand who got cash for your clunker, you are the proud owner of a new car… and possibly some new debt.
The price of gas can make a last-minute, carefree road trips unrealistic for some. Before you give up on your dreams of a family vacation, take the time to sit down and develop a plan.
Dear Advice Team: I let my friend and his wife borrow $2,500 more than a year ago. They are making payments as agreed, but I can't help to get annoyed when I see them spending money frivolously. They even went on a trip recently—I can’t even afford to do that! What can I do about this situation? -Steve, Minnesota
Steve: While you may not agree with all of their spending decisions, at least they are keeping their promise to pay you back. I believe that when you lend someone money, it is important not to assume a position of power. Being too authoritative could damage your friendship.
Dear Advice Team: In October, I loaned my friend of 12 years $4,000. I wrote her a personal check for the amount of the loan. She verbally agreed to pay me back all of her income tax refund. Well, she got her income tax and spent it all, without notifying me. I called her and she said that she would pay me $100/week until balance was paid. That was three weeks ago and I haven't heard from her. I am a single parent and trying to go to school. She knows I need it. What can I do? -Cheryl, Phoenix
David: I am sorry you are dealing with this delicate issue. Since your friend has not kept her end of the bargain, it is past time that you begin treating the loan like you would any other business matter. Discuss the terms of the agreement and put the details in writing. Be sure to list both parties involved, the interest rate, due dates, payment amounts, and penalty for late or missed payments. Document the date and time of any letters or phone calls, and be sure to make note of all the responses to your attempts. Your records may be necessary if you plan to take the matter to court, or if you plan to write the debt off as non-business bad debt on your next tax return.
Dear Advice Team: I recently co-signed for a car loan for a friend. This "friend" has duped me and she won't pay. My question is: how can I get my name removed from the loan? I don't want to pay for a car for her. Her name is on the title and she has a car free of charge! I have learned my lesson; I just want to know what can be done—before my credit is ruined. -Mark, Tennessee
Mark: Helping someone obtain their goals can be very rewarding; however, far too many friendships end when money is involved. Unfortunately, there is no simple way to “remove” your name from a cosigned loan. In order for the primary borrower to assume total responsibly for the debt, she would have to apply for a new loan and qualify on her own. (I am assuming that this is not possible or you wouldn’t have been asked to cosign in the first place.) Talk to your friend about selling the car and repaying the loan. Seek mediation if necessary. If this is not possible, you might consider protecting your credit rating by making the payments to the creditor yourself and then collecting from her. Because the stakes are so high, I recommend that you seek legal advice to understand your rights and responsibilities.
Last year, a record 1.67 million cars and trucks were repossessed representing a 12% increase over 2007. Unfortunately, this isn’t too surprising since in the first quarter of 2007, 29 percent of consumers owed more on their vehicles than they were worth. Being upside down on an auto loan leaves some struggling consumers with few choices. However, in most cases, it pays to do everything you can to avoid a repossession. Consider the following.
-A repossession is a repossession—voluntary or not. Being nice only matters so much. A voluntary repossession and an involuntary repossession affect your credit the same way. The main benefit of turning in the car yourself is that you might avoid being stranded when your car is taken from the grocery store parking lot. Other than that, the only difference is that if you voluntarily return your vehicle you could save on some fees associated with its collection. Either way, the notation will remain on your credit bureau file for seven years.
-Your obligations may not end after the vehicle is repossessed. After a vehicle is repossessed, the lender will most likely sell it to the highest bidder and apply the proceeds of the sale to the balance owed on the car. If the sale price is not sufficient to pay the balance due, there will be a "deficiency balance" remaining. Yes, contrary to popular belief, you will be legally obligated to pay this deficiency balance. If you do not pay this balance, the creditor can possibly sue you in an effort to try and collect.
-Cosigners are equally responsible. If you have a cosigner, and you value your relationship with them, do not let your vehicle go back as a repossession. Not only will the repossession appear on the cosigner’s report, but they are also legally responsible for any deficiency balance.
The most significant impact of repossession has nothing to do with money. In addition to losing something you most likely want and need, having it taken away can leave you feeling violated and vulnerable.
If you ever have trouble making your vehicle loan payments, communicate with your lender. Many creditors have hardship programs in place to help people experiencing temporary set-backs. For example, your lender may grant an extension, meaning that the past due amount can be paid at the end of your loan. Another option may be for the lender to rewrite your loan to reduce your monthly payments.
When making a request for a revised payment schedule, remember that your creditors are not required to agree. Therefore, you should approach them in a polite, business-like manner. If you are able to negotiate, get the details in writing.
If working with your existing loan is not possible or desirable, seek another. Refinancing the loan with longer terms will reduce your monthly payment. However, keep in mind that for reasons we discussed earlier in this chapter, lengthening your loan will not improve your overall financial situation.
Another potential solution to repossession is selling the car. Even if you are upside-down on your loan and are required to come up with some cash to pay it off and release the title, it is still preferable to repossession.
If you are having trouble making your lease payments, look very carefully at your contract to learn the consequences of default. Often, the fees associated with canceling your lease are very high. If you choose to proceed with canceling your agreement, write to the dealer stating that you want to terminate early. The dealer will contact you with the amount you owe. If you simply do not make on-time lease payments, the vehicle will most likely be repossessed.
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