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Determining How Much You Can Afford Before financing or leasing a vehicle, make sure you have enough income to cover your current monthly living expenses. Then, finance new purchases only when you can afford to take on a new monthly payment. The “Monthly Spending Plan” is a tool to help determine an affordable payment for you. The only time to consider taking on additional debt is when you’re spending less each month than you take home. The additional debt load should not cut into the amount you’ve committed to saving for emergencies and other top priorities or life goals. Saving money for a down payment or trading in a vehicle can reduce the amount you need to finance. In some cases, your trade-in vehicle will take care of the down payment on your vehicle. Know the Terms of Financing Before You Sign Negotiated Price of the Vehicle – The purchase price of the vehicle agreed upon by the buyer and the dealer. Down Payment – An initial amount paid to reduce the amount financed. Extended Service Contract – Optional protection on specified mechanical and electrical components of the vehicle available for purchase to supplement the warranty coverage provided with the new or used vehicle. Credit Insurance – Optional insurance that pays the scheduled unpaid balance if you die or scheduled monthly payments if you become disabled. As with most contract terms, the cost of optional credit insurance must be disclosed in writing, and, if you want it, you must agree to it and sign for it. Guaranteed Auto Protection (GAP) – Optional protection that pays the difference between the amount you owe on your vehicle and the amount you receive from your insurance company if the vehicle is stolen or destroyed before you have satisfied your credit obligation. Amount Financed – The dollar amount of the credit that is provided to you. Annual Percentage Rate or “APR” – The cost of credit for one year expressed as a percentage. Finance Charge – The total dollar amount you pay to use credit. Fixed Rate Financing – The finance rate remains the same over the life of the contract. Variable Rate Financing – The finance rate varies and the amount you must pay changes over the life of the contract. Monthly Payment Amount – The dollar amount due each month to repay the credit agreement. Assignee – The bank, finance company or credit union that purchases the contract from the dealer. Getting a Copy of Your Credit Report To obtain a copy of your credit report, contact one of the three major credit bureaus: Equifax
Credit Information Services Remember... Before Visiting the Dealership: Evaluate
your financial situation and determine how much you can afford to
pay each month. A longer-term finance contract may mean smaller
monthly payments than a shorter-term finance contract (if all other
terms are the same) – but will result in more money paid over
time on your contract. Stay
within the price range that you can afford.
Be aware
that if you financed the vehicle, the assignee (bank, finance company
or credit union that purchases the contract) holds a lien on the
vehicle’s title (and in some cases the actual title) until
you have paid the contract in full.
Talk
to your creditors if you experience difficulties making your monthly
payments. Explain your Federal Laws Familiarize yourself with laws that authorize and regulate vehicle dealership financing and leasing. Truth in Lending Act – requires that, before you sign the agreement, creditors give you written disclosure of important terms of the credit agreement such as APR, total finance charges, monthly payment amount, payment due dates, total amount being financed, length of the credit agreement and any charges for late payment. Federal Consumer Leasing Act (FCLA) – requires the leasing company (dealership, for example) to disclose certain information before a lease is signed, including: the total amount of the initial payment; the number and amounts of monthly payments; all fees charged, including license fees and taxes; and the charges for default or late payments. For an automobile lease, the lessor must additionally disclose the annual mileage allowance and charges for excessive mileage; whether the lease can be terminated early; whether the leased automobile can be purchased at the end of the lease; the price to buy at the end of the lease; and any extra payments that may be required at the end of the lease. Credit Practices Rule – requires creditors to provide a written notice to potential co-signers about their liability if the other person fails to pay; prohibits late charges in some situations; and prohibits creditors from using certain contract provisions that the government found to be unfair to consumers. Equal Credit Opportunity Act – prohibits discrimination related to credit because of your gender, race, color, marital status, religion, national origin or age. It also prohibits discrimination related to credit based on the fact that you are receiving public assistance or that you have exercised your rights under the federal Consumer Credit Protection Act. For more information on federal credit regulations and consumer rights, contact: Federal
Trade Commission State Laws Some state laws may provide you with additional rights. For information on these laws, contact your state’s consumer protection agency or Attorney General’s office (Web site: www.naag.org). |
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