How much do you save with a zero percent loan?

Here’s an example:

Let’s say you buy a new car for $24,000 and you want a 60 month loan. If you were to get an auto loan at a conventional interest rate of 6.5%, your payments would be $470 a month and your total finance charges would be $4175.

If you bought the same car with a 0% APR loan, you would save the $4175 in finance charges and your monthly payments would only be $400 a month, a savings of $70 a month.

Getting a 0% APR loan sounds like a good deal — and it is — but what if the car dealer/manufacturer is also offering a rebate, which is typically offered as an alternative to the 0% loan. You must select one or the other, but not both. Which is better?

To continue with our example, let’s say the car manufacturer is offering a $4175 rebate (we’ve purposely made it the same as the finance charges above). So, your choice is to take the $4175 cash rebate, which you would use as a down payment to reduce the amount of your loan to $19,925 — OR to take the 0% loan which also saves you $4175 over the life of the loan. Which is best?

We’ve already said that the 0% loan gets you a $400 monthly payment. However, if you accept the $4175 rebate instead (at normal interest rate), your payments are only $388 a month — $12 less than the 0% APR deal.

So, what’s the catch?

In order for the 0% APR deal to be the best deal against a cash rebate, the rebate must be relatively small compared to the savings in finance charges of the zero percent loan. In other words, in our example above, the rebate must be at least $4000 for it to be a better deal. And $4000 is a large rebate that you don’t see very often on new cars.

In conclusion, unless the car manufacturer is offering some very large rebates, a 0% APR loan will be a better deal. If you want to take a look at current 0% APR deals, visit our sister site at Best Car Deals.

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When you buy a car from an individual, you pay with cash, a money order, or a bank cashiers check. The money can come from savings, a checking account, a family loan, or a loan from a bank or financial company. Most sellers do not like personal checks.

Buyers sometimes expect a private seller to “take payments” but any smart seller will not agree to such a plan. It is too risky. As a buyer, it’s better to get your own loan.

Requirements for a car loan

Loans from banks or finance companies require that you have a not-so-bad credit score, have an income sufficient to repay the loan, and have no excessive debts that might interfer with your ability to repay the loan. Loan companies do not want to give money to people who are unable to repay a loan.

Buying a car with bad credit – or no credit

People who have a bad credit history — a history of not making payments on time or of missing payments on other loans – will have problems getting a car loan. The lender will assume that if you have had problems in the past, there is a good chance that you’ll have problems again.

Most first-time car buyers have no credit history. Having no credit history is almost as bad as having a flawed credit history. Loan companies don’t have enough data to make a decision about you, so they often take the safest route and reject your loan application. Building good credit takes time and there is no quick easy solution.

The solution for people with bad credit or no credit is to get a co-signer, who agrees to make payments if you should default. Although the loan is completely in your name, the co-signer would have to pay if you do not. It is a good way not only to get a loan that you might not otherwise be able to get, but it provides a good way to build your own credit history for the next time you need a loan.

Getting a loan

When you buy from an individual, get a complete description of the car, year of manufacture, make, model, and list of options. Also get the VIN (Vehicle Identification Number), the price you intend to pay for the vehicle, and take this information to your bank, finance company, or online loan company to apply for a loan. The amount of the loan for which you will be approved will depend on the age of the vehicle, its “black book” value, your income, your debts, and your credit score. If you can’t get approved for the full amount of the price of the vehicle you want, you’ll have to come up with cash to make up the difference.

The bank or loan company will look at your information, get your credit score (and your co-signer’s), and verify your income and debt information. They will come back to you to let you know that you are approved (or disapproved), and the amount of money they are willing to provide to you for the vehicle. The bank or loan company will write you and/or the seller a check.

Write a Bill of Sale

It is good to create a simple legal document called a Bill of Sale. It can be an informal handwritten document, or you can pick up a printed version at any office supply store. It should contain the names and addresses of both buyer and seller, a description of the vehicle, makes/model/year, VIN number, and mileage. A smart seller will also insert a clause stating that he vehicle is being sold “as-is” without warrantees or guarantees. Both buyer and seller should sign and date the document. Make a copy for both buyer and seller.

Get a clear title

Make sure the seller has a clear title that he can hand over to your at the same time you hand him your money. If he still has a lien (loan) on the vehicle, you should conduct the transaction with the seller at his bank. That way, you can see that his loan gets paid off with your money and that the bank gives you the title directly. Accept no promises from a seller about sending the title to you later.

Inspect the vehicle

It is also good to have had a mechanic inspect the vehicle before the sale to make sure you understand the car’s condition. It is not a good idea to simply accept the seller’s word about the condition of a car. Not that sellers are dishonest (although some are) but he may not know about some hidden problems, and therefore can’t tell you about them.

Also get an AutoCheck® Vehicle History Report. so that you’ll know if the car has been wrecked, flooded, or has been involved in accidents. Although these reports can have incomplete and sometimes inaccurate information, they are very valuable when buying a used car.

Where to find cars from private sellers

They are everywhere. Newspaper classified ads. In free “auto trader” magazines at your local auto parts stores and supermarkets, and at online classified web sites. We also suggest you check out eBays list of  where more used cars are sold every day than from any other source. Just take caution and ask a lot of questions.

Summary

Buying a car from an individual is not difficult, but there are precautions you need to take to make sure you don’t have problems. Remember, used cars are nearly always sold “as-is” which means you can’t take it back if you find problems later. Furthermore, lemon laws don’t apply to used cars and there are no “3-day right of return” laws as many people believe.

For additional information and advice about buying used cars, see the Used Car Buyers Guide.

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Of course, the real answer as to what is the best car can vary, depending on your own personal needs, preferences, and finances. Some people place a great deal of importance on reliability. Others might think safety or cost is more important. And others might feel that the best car should have great looks and high performance. 

Many people believe that to get the best car, you must spend a lot of money — that the best cars are the most expensive one. Strangely, this is just not true. Actually, some of the best cars are the least expensive — and some of the most expensive cars are the least reliable and the least efficient.

One of the best automobiles, overall, is the Honda Civic. Why? Because it has the most perfect combination of all the factors that most car buyers look for — cost, fuel efficiency, reliability, cost of operation, cost of insurance, style, performance, resale value, riding comfort, luxury features, and handling.

Now, we know that the Honda Civic is not the best car for everyone. Some people need more interior room (try the Honda Accord sedan), or more performance, or more luxury, or more cargo space. Some people need a pickup truck. Others want a sports car or convertible. Some just want something other than a Honda (?).

There are certainly other alternative cars that offer the same or nearly the same qualities as the Civic. Following are some of those that have garnered “best car” nominations in their classes by respected automobile reviewers such as Consumer Reports, Motor Trend, Car & Driver, JD Power, and others. We list them here in no particular order.

• Hyundai Sonata
• Hyundai Elantra
• Hyundai Genesis
• Ford Fusion
• Ford Focus
• Ford Taurus
• Honda Fit
• Honda Civic
• Toyota Prius
• Toyota Camry
• Nissan Altima
• Mini Cooper
• Scion tC
• Mazda MX-5 Miata
• Mazda5
• Toyota RAV4
• Honda CR-V
• Acura TSX

Notice that Ford is the only American car maker in our list. Ford has made tremendous strides in improved quality, reliability, and styling.

In summary, the best cars are those with the best combination of qualities that most automotive consumers are looking for.

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Users of online car buying sites such as AutoTrader, Craigslist, online newspaper classified auto ads, and other non-dealer car sites often find unbelieveable good deals, only to find it was no deal at all, but a common car sales scam.

We often hear the question, “Is this a scam?” from car buyers who have found a “great deal” online. Buyers become suspicious because the price is “too good” and the payment and pickup arrangements seem a little fishy.

Cheap cars advertised on Internet sites can be scams, and it is relatively easy to spot them after the seller has been contacted, but not before. A car-for-sale ad placed by a scammer looks like any other ad — except the price is much lower than normal. They even provide pictures and VIN numbers of real cars (snagged somewhere on the Internet) to make the ads seem more believeable.

If you want to avoid the inherent problems of buying on Craigslist and other online classified ad sites, use a site such as UsedCars.com that only sells discounted used cars from licensed dealers in your area.

The general way in which the car scam works is always the same, although details can vary from case to case. Here’s how it works.

How the car scam works

The seller will have a picture of a car he claims to be selling for a low price. He will describe the car and it’s condition, and explain why the car is being sold so cheap. His story nearly always involves some unusual personal situation, and is usually very believeable. Maybe he just got a divorce and needs to sell his wife’s old car. Or his father died and his car is being sold. Or he just lost his job and needs the money. Or he is a soldier leaving for Iraq or Afghanistan and doesn’t need the car any longer.

Many of these scam stories involve a seller who claims to be out of the country or in the military, although his car is still in the country somewhere and must be shipped to the buyer. In fact, most of these scammers actually are in another country — where they can’t be found and prosecuted.

The seller might claim that he will use ”eBay protection” with “eBay shipping” services, and that the buyer’s money will be protected by using some kind of third-party escrow or bank account for safe payment — and that the buyer will have 5 days to decide whether to keep the car or return it and get his money back. It’s all to make the buyer feel that the deal is legitimate and safe, when it is not.

Why it’s a scam

The seller’s story and explanations are all nonsense. eBay has no such program or services for cars not sold through the eBay site. The escrow service or bank account is not legitimate, although it might sound like it is. It’s a way for the scammer to get your money fast and then disappear.

In fact, there is no car. The picture of the car in the seller’s ad was snatched someplace on the Internet. The car might actually exist somewhere, but it doesn’t belong to the “seller.”

One way of exposing a scam is to ask the seller to email you a picture of himself standing next to the car. Of course you’ll get all kinds of excuses: “the car isn’t here right now,” the car is in a shipping container,” or “I’m in Iraq and the car is in New Jersey.” This is one of the common elements of this scam — the car and buyer are never in the same place.

This car scam will take your money and you’ll get no car. The scam has been around for years, but many people have never heard about it, and end up learning about it the hard way.

Don’t fall for this common scam. If the deal sounds a little fishy, follow your intuition and avoid it. Find your car somewhere else.

Actual emails from scammers

This one was sent to us by Diane N.:

“If you are interested in my 2003 Mini Cooper S, it is in perfect condition, with no need for additional repairs, no scratches, dings, special marks whatsoever. It has 69,945 miles and the VIN # is : WMWRE33463TD65004. It has a clear title ready to be signed and notarized on your name.

I have the pictures hosted on the net and you can see them at :http://mynetimages.com/album/LauraPlummer1/2003_Mini_CooperS/. [Editor: where did they steal the nice picture?]

The car is located in Honolulu, HI. [Editor: sure it is]

The price is $2,970 including shipping costs anywhere in the continental US. There are no other costs regarding this transaction. I am selling the car because I am in the army, and my unit will be deployed to Afghanistan in December. [Editor: sure, you are in the Army, that's what many of you scammers say]

The transaction will be closed only through a 3rd party and this way we will both be protected. [Editor: only the scammer seller is protected]  My time is limited due to my job in the army so I decided to use a service from ProPay. [Editor: ProPay is NOT an escrow service] To begin the transaction I’ll need your full name and shipping address, I will forward the details of our transaction to ProPay and then you will receive an invoice from them. The car will be shipped insured to your location with DAS and you will have 5 days for inspection. [Editor: the car never shows up, and the seller disappears from the face of the earth, along with your money]

  Thank you,
       Laura Plummer [Editor: a nice girly name for a scumbag scammer]“

Here’s one shared in an email to us by Nathan J.:

“Thanks for your mail, I think am happy with your price.  I wish to complete the payment soon so I can assume the new owner of the vehicle. [Editor: why don't these scammers learn good English?]
 
Actually I bought a vehicle from a seller in Atlanta GA at the price of $26,000 and I sent payment to him, on getting to the pick up, my shipper and agent [Editor: they always have an "agent"] discovered that the vehicle has had an accident before and the seller did not inform me of this so I had to cancel the transaction.

I have informed him that I have seen another vehicle with a lesser price and have instructed him that he will be sending the funds to you and he accepted, though he said that he will deduct $100 from the total funds as the listing expences [Editor: learn to spell, Mr. Scammer] since he will place the vehicle to the Advert [Editor: what is he saying?], he also told me that his credit union allows a refund payment on one cashier’s check only [Editor: that's what they all say].

So, He will be sending the whole funds($26,000) to you. Since your vehicle,is cheaper ($16,599), the difference ($9,401) would be used to offset shipping charges and other expences. You will have to deduct your price once payment gets to you. [Editor: why would anyone send $9401 extra money to someone he doesn't know and has never met???]

I will advice my shipper and agent to contact you for the pickup as soon as you receive the payment. and other necessary documents will either be collected from you at the point of pick-up or sent via fedex courier to me.

Confirm this and provide 1)Name (cheque will be made payable to), 2)Address ( the check will be delivered to) and Phone number for check payment to be delivered to you via registered mail.

Thanks for your understanding hope to hear from you soon” [Editor: I'm sure you do, you scumbag]

Here is another from Diane N.:

“I am emailing you regarding the VERY Nice 2004 HONDA ACCORD EX, that I have for sale on Craigslist, I sell it at this price ($4000) because i just finished the divorce with my husband and i don`t have drivers license. [Editor: sure, nice story Ms. Scammer -- brings tears to my eyes]

The vehicle looks and works perfect. As you see it has a lot of options. No hidden problems and never involved in any kind of accidents, ONLY 55,100 miles. The VIN# is: VIN: 1HGCM56664A149427 [Editor: VIN picked up on the Internet somewhere. It is a real car, but doesn't belong to scammer]

Since the car was also listed on eBay.com [Editor: maybe so, but it's not your car Ms. Scammer], I prefer closing the transaction trough their Vehicle Purchase Protection system [Editor: no such eBay system for Craigslist cars] because we are both protected. If you don’t know how does the eBay Vehicle Purchase Protection Program work please let me know so I can help you.

I used it several times (as a seller but as well as a buyer) and everything was perfect.
The vehicle was inspected by eBay. [Editor: eBay does not inspect cars] as well, shipping & handling fees are included in the final price ($4.000.00). If you want to see more pictures please click here:Honda Accord . [Editor: nice picture — if only it was really your car Ms. Scammer]

If you are interested please let me know your shipping details so i can open a transaction case. {Editor: a what???]

     (signed) Theresa Robinson [Editor: again, nice cute girly name for a scammer]“

Avoid buying cars you can’t see

In fact, it’s not a good idea, scam or no scam, when you can’t actually see the car, can’t drive it, can’t have it inspected by a mechanic, and can’t talk directly to the seller. Scammers tempt buyers to take the risk by offering unrealistic low prices and offering a “money back guarantee.”

A better way to find cars online

If you want to avoid scams and the problems of buying cars on eBay and Craigslist, use a web site such as UsedCars.com that only sells already-discounted used cars from licensed used-car dealers. The big advantage is that  you can see the car, inspect it, drive it, deal with a known seller. UsedCars.com is the largest online used car sales site.

Another kind of car scam

If you found this article looking for information about another kind of car scam, a scam against individuals selling a used car, not buying one, then you want to read the article, Car Buyer Scam.

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In normal years, we would tell you that the best time to buy a car is when sales are slow at the end of the month, end or the year, or during vacation season. We would tell you that you might still have to negotiate your prices because dealers aren’t just going to give you a good deal because they like you.

BUT……..things are much different now. Sales have been slow for over a year and are still slow right now. As a result, we are now seeing some of the biggest and best car incentives on new cars that we’ve seen in years. Nearly every car manufacturer is now offering a combination of large factory-to-customer rebates, low-interest loan deals, 0% APR loans (even on long 72 month loans), special lease deals, free maintenance, and “secret” factory-to-dealer rebates that dealers usually give to customers.

Why has 2010 become such a good time to buy a car?

For a number of reasons.

First, the economy seems to be improving, if every so slowly, and car makers and dealers are anxious to give things a little push. They are offering attractive incentives as a way of convincing potential buyers to take action.

Second, even though there are people buying new cars, the market is smaller than a few years ago. This means there’s fewer cars to be sold and the competition among dealers and car makers is tremendous — to the benefit of automobile consumers.

This is a good time to buy because many of the deals are the about as good as they can possibly be. You can’t get lower than zero percent interest on a loan. You can’t get lower than a manufacturer’s cost to build a car and expect them to stay in business. You can’t much better on special car lease deals that give you a deeply discounted price, combined with a low money factor and high residual. Some even kick in free scheduled maintenance for a couple of years.

Another factor creating the outstanding car-buying opportunities right now is the “Toyota Situation.” Toyota’s unfortunate highly-publicized problems have caused a big slowdown in Toyota car sales. Most other car makers have tried to capitalize on the situation by offering some very attractive incentives. It’s like a feeding frenzy. Now Totoya, who is solving their problems, is offering some of the best incentives in their entire history in attempting to restore customer confidence and recover sales.

If you are looking for 0% APR loan deals, nearly every manufacturer has them on at least some of their models and styles. Even if 0% is not available, other very low-interest loans are being offered.  Furthermore, the deals are being offered even on long-term loans, which has been rare until now.

If you’re looking for great lease deals, Honda and Toyota come to mind. In fact, nearly all non-American brands have special car lease deals now. American brands (Chrysler, Ford, GM) haven’t quite come back to leasing after losing so much money on leases in the last few years.

Big rebates, however, are available on many brands, including American brands, and especially on leftover 2009 vehicles. Chrysler, Ford, and GM rebates are very attractive, as are those from Hyundai/Kia, Mazda, Nissan, and Mitsubishi.

So if you are in the market for a new car, NOW is a good time to buy. It might get a little better later in the year — and maybe not.

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Independent Used-Car Dealers – Independent used-car lots are a potential source of affordable cheap second hand cars. Many lots have older vehicles that can be real bargains, but might require a little work. You should take care to determine if the price is fair and that the vehicle has no hidden problems. Most used cars are sold “as-is” and come without any kind of warranty or return policy. Check out local used-car lots in your area but also consider large national or regional used-car dealers such as CarMax.

New-Car Dealer Used Car Lots - Many new-car dealers also sell pre-owned cars. Most new-car dealers only offer relatively late model used vehicles that have been taken in trade or are off-lease, and are in good condition — and are relatively expensive. But bargains can be found. Therefore, it doesn’t hurt to check out local new-car dealers but also look at other sources listed below. Some new-car dealers sell “certified” used cars — at a higher price. These cars have been inspected thoroughly and come with a short guarantee.

Buy-Here-Pay-Here (BHPH) Dealers – BHPH dealers are a different kind of used-car dealer that provides in-house financing, usually with no credit check. Most BHPH dealers are local and can be recognized by their “we finance anyone” or “no credit check” banners. Be aware that interest rates are usually very high and payment terms are strict. See “Should I Buy From a Buy-Here-Pay-Dealer Car Dealer” for more details.

Special Promtional Deals on New Cars- Don’t overlook this year’s (or last year’s) brand new cars as a potential source of good bargains. There are currently tons of heavy rebates and other incentives being offered by car manufacturers, especially on American brands, and especially on last year’s models, that can often make certain new cars less expensive than used cars of the same make and model. See New Car Rebates and Incentives.

Used Cars Online – Although the Internet is a good potential way to find cheap cars, take extra caution due to the possibility of getting scammed. If a deal seems to be too good to be true, it probably is. Craigslist and Autotrader are particularly frequented by scam artists. We recommend sticking with sites such eBay Motors, which has a buyer protection program (only for cars puurchased through the eBay site) and UsedCars.com, the Internet’s largest used car buying service, with over a half a million used car listings.

Lease a New Car – If your goal is simply to get low monthly car payments, leasing a new car can be 30% to 60% less expensive than buying the same car with a loan – cut your payments in half. This allows you to drive a brand new car for the same or less money than you might spend on a late model used car. However, be sure to read the free Lease Guide before you make a decision to lease. It’s cheap but may not right for everyone.         

Take Over a Car Lease - Take over a cheap car lease from someone who needs to get out of their lease early. Online services such as Swapalease offer car lease takeovers at bargain prices. These are almost-new cars being offered by sellers who are often desperate to get out of their leases. These can be excellent deals. It is the cheapest way to drive a almost-new car.

Government Car Auctions – This is an often overlooked source of cheap cars and trucks. Local, state, and federal government and law enforcement agencies frequently auction surplus and seized vehicles. Outstanding bargains are possible. To participate, you have to know where and when the auctions take place, and how to bid. See Government Auto Auctions for more details.

Damaged and Salvage Cars – Cars that have been damaged or salvaged can be a good source of cheap cars. See Damaged Cars for Sale for more details.  Salvage Auctions and Repossessed Car Auctions are other possible sources of cheap cars and project cars for sale. Obviously, a lot of caution must be taken to make sure you know exactly what you’re buying but, if done correctly, some great deals can be had this way.

Police Seized Property and Surplus Auctions – Law enforcement agencies seize and impound vehicles from law-breakers and sell them at public Police Impound Auctions, for bargain prices. Many are high-end late-model luxury vehicles in perfect condition. These agencies also sell Surplus Vehicles that are being replaced with newer vehicles. These auctions are conducted regularly and are open to the public.

Rebuildable Wrecked Cars – If you have mechanical skills, Buying and Rebuilding a Wrecked Car can be a way to a cheap ride. Cars that have been declared total losses by insurance companies can often be purchased as salvage vehicles and project cars for almost nothing. Many of these vehicles have little damage and can be rebuilt and restored to good running order for little money.

Unclaimed and Abandoned Car Auctions – Cities and towing companies pick up unclaimed abandoned vehicles every day from the sides of streets, highways, and parking lots. They try to find the owners, but if they can’t, the cars are sold at auction, often for almost nothing. The cars can range from junkers to almost-new vehicles. See our article, How to Find and Buy Unclaimed Cars.

If you are looking for a good cheap car, start with the suggestions above and remember to take extra caution to make sure you don’t get scammed and that you get what you pay for. Used cars are sold “as-is” which means that you have no right to get your money back once the sale has been made. It’s always a good idea to have your car inspected by a qualified mechanic before you make the purchase.

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We wondered about that question too. Are there certain cars that most people are buying, asking about, seeking information about, and asking for pricing on? What car makes and models are most popular? Are they the best cars to buy?

Well, we went to one of the most-visited used-car web sites, UsedCars.com, and found such a list. Actually, the site compiles a real-time list of the makes and models that their site visitors most often request information about, which is an indicator of the most popular cars.

The most-popular car list can change from day to day, but not by much. A vehicle that is #1 today might fall to #2 tomorrow, and vice versa, because the rankings depend on what online visitors to their web site are asking about and searching for on any particular day.  

Here’s the current list of most popular used cars at the time of this writing:

Notice that Honda is on top. Why? Because Honda is the most reliable brand of automobile. Used Honda cars will continue to run reliably almost forever if maintained properly.

The Ford F-150 is next. It’s the best selling make/model new vehicle of all time. No wonder it’s also in the top three of used cars too.

Toyota is just behind Honda in reliability and high-resale value, so it is no surprise the popular Camry model is on the list. Other Toyota models are popular too.

Then there’s the Ford Explorer, the most popular SUV, and the Ford Mustang, the most popular affordable performance car.

Finally, there are the Nissan Maxima and Altima, high in reliability and resale value, just not quite as high as Honda and Toyota. But many people like Nissan’s styling, particularly young people, better than Honda and Toyota.

Where to buy

If you prefer buying your used car from an individual private seller, you can find them in newspaper classifed ads, in free “auto trader” magazines at your local auto parts store or supermarket, and online on the Internet. We suggest you also look on eBay.com at their list of .

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New or first-time car buyers are often surprised at being turned down for a car loan because they have no credit history, which unfortunately has about the same effect as having bad credit.

Lenders want to see that a borrower has a good record with previous loans and credit cards. Without a history of credit, a borrower represents a risk to lenders. If they don’t know a borrower’s history, they take the low road and assume the worst.

It’s a familiar “catch-22″ situation in that you can’t get a loan to establish credit without already having credit. So what is the answer?

What is the answer?

The most common solution is to have someone “co-sign” your loan contract. Typicallly, it’s family member who has a good credit score. A co-signer plays no part in the loan unless the primary borrower fails to make payments. In that case, the loan company would have the right to seek payment from the co-signer.

A co-signer does not share ownership of your vehicle. If you pay off your loan on time and without problems, the co-signer has no further role, rights, or responsiblities. Their job is finished.

Even if you default on your loan and the co-signer has to step in and make payments, he/she still has no owership rights. The car would still be in your name. Many people who co-sign do not understand this important point.

Another point important for co-signers to understand is that a co-signed loan or lease shows up on both the borrower’s credit report and the co-signer’s as a financial obligation or debt. This may affect the co-signer’s ability to get a new loan or lease for themselves. It increases their “debt load” which is a factor that is considered when one applies for new credit.

However, on the postive side, if you pay off your loan with no problems, both you and the co-signer benefit from the good credit report.

You should take care in selecting a co-signer. Since approval of your loan will depend on their credit worthiness, the person should have a strong and healthy credit history, a steady source of income, and not have excessive debt. For most new car buyers, this will probably be a close family member.

If you have already shown a history of financial irresponsibility, you may have difficulty finding someone who is willing to assume responsibility for your new obligations. Like the banks or loan companies, your potential co-signers may not want to take on the added responsibility and credit debt load. If the co-signer is not able to take over payment when the primary borrower defaults, both the borrower’s and the co-signer’s credit score are damaged.

If you can’t find a co-signer

If you can’t find someone who will co-sign for you, you have few other options. You may have to work out your transportation needs another way while you save enough money to get started with an inexpensive used car, while building your credit history so that you won’t need a co-signer the next time. Get a couple of credit cards or department store cards, use them often, and pay them off each month.

You could also try a used car dealer who specializes in working with people with bad credit, such as Drivetime.com. They have 78 locations around the country and offer a wide selection of used cars. This type of dealer its their own loans, which means it won’t help — or hurt — your credit.

Summary

Getting a co-signer is a great way to start building your own credit history. If you make your payments on time, don’t skip payments, and don’t default on your loan, you’ll be in great shape for your next loan — without a co-signer.

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One of the best ways to decide between car leasing and buying with a loan is to directly compare the attributes of each, which we will show you in this article. We’ll tell you about how payments compare, about how fees are different, about advantages, and disadvantages.

Another way to help make a decision between leasing and buying is to compare the cost of each for a specific lease vs. buy situation. For this, you’ll need a special Lease vs. Buy Calculator.

Now, let’s take a look at how car leasing compares with buying with a loan.

How is car leasing different from car buying with a loan?

MONTHLY PAYMENTS
> Leasing – Monthly lease payments are roughly 30%-50% less than loan payments for the same car, same term because you only pay for the vehicle’s predicted depreciated value, not the entire value. The average vehicle will depreciate approximately 50% in three years.
> Buying – Monthly loan payments are higher because you pay for the entire cost of the vehicle, which includes the depreciated value. The average vehicle will depreciate approximately 50% in three years.

PAYMENT DUE DATE
> Leasing – Payments are due at the beginning of the month. Your first lease payment is due at the time you sign your lease contract.
> Buying – Payments are due at the end of the month. Your first payment is due one month after you sign your loan contract.

DOWN PAYMENT
> Leasing – Leasing does not require a down payment (“cap cost reduction”). However, some special lease deals may require a down payment in order to get the deal. Making a down payment lowers the monthly payment.
> Buying – Buying with a loan usually requires a down payment, as much as 20%. Making a down payment lowers the monthly payment.

UP-FRONT COSTS
> Leasing – Typically includes:  down payment (if any), first month’s payment, taxes, registration fees, and possibly a security deposit.
> Buying – Typically includes:   down payment, taxes, and registration fees. No security deposit is required.

SALES TAX
> Leasing – Sales tax is based on and paid with monthly payments (in most states), instead of all up front on the entire value of the vehicle. This saves money for the leasing customer.
> Buying – Customers pay sales tax on the entire purchase cost of the vehicle up front, but is usually rolled into the loan as an extra cost. If the customer sells the vehicle later, there is no partial sales tax refund. If he trades, there may be a tax refund — in some states.

SECURITY DEPOSIT
> Leasing – Leases sometime require a security deposit, which is returned at lease-end. The amount of the deposit is typically about the same as one month’s payment. Customers with good credit often don’t have to leave a security deposit.
> Buying – Security deposits are not required, although down payments are usually required, unlike leasing.

OWNERSHIP
> Leasing – Since leasing is designed to only pay for depreciation (with lower payments), you don’t build ownership equity. You return the vehicle to the lease company at lease-end, or purchase your vehicle for it’s depreciated value.
> Buying – By making higher payments, you not only pay for depreciation but also build up ownership equity. At the end of your loan, you receive the title and own the vehicle. It’s value, however, has depreciated and your ownership equity is significantly reduced.

INSURANCE
> Leasing – Laws in most states require you to have insurance. Lease companies require that you pay for insurance on your leased vehicle. The level of required coverage may be higher than is required by state laws.
> Buying – Laws in most states require you to have insurance. Loan companies may require you to have a minimum level of insurance to protect their interest in the vehicle. The level of required coverage may be higher than is required by state laws.

MAINTENANCE
> Leasing – Lease companies require that you keep your vehicle in good condition and maintain it properly. You are not required to have your maintenance done by a dealer.
> Buying – You are free to maintain, or not maintain, your vehicle as you like. However, if you expect to possibly sell or trade your vehicle in the future, the buyer may be interested in how the vehicle was maintained.

GAP INSURANCE
> Leasing – Most leases come with automatic GAP coverage, or a waiver, that pays off your lease if your car is stolen or totaled in an accident. It makes up the difference (gap) between what your insurance pays and the amount still owed on the lease.
> Buying – Loans do not come with GAP insurance. It must be purchased separately. If you will be upside down on your loan, which is very common, and should have GAP insurance to protect yourself in case of insurance shortfall if your car is stolen or totaled.

EARLY TERMINATION
> Leasing – The cost of early lease termination can be expensive due to the fact that your low monthly payments do not keep up with the rapid depeciation of your vehicle. You nearly always owe more on the lease than the vehicle is worth, until near the end.
> Buying – Ending a loan early by selling or trading can be expensive because payments may not have kept up with the rapid depreciation of your vehicle. You may be upside down, which means your still owe more on your loan than the vehicle is worth. This can happen if you rolled another loan balance into your current loan, made little or no down payment, or have a long-term loan.

END OF TERM
> Leasing – You can return your vehicle to the lease company, or purchase it for the price specified in your lease contract. Some fees may apply (see below).
> Buying – You own the vehicle and may choose to 1) keep driving it, 2) sell it for its depreciated retail value, or 3) trade it for its depreciated wholesale value. No fees are required at end of loan.

END CHARGES
> Leasing – Most leases require a “disposition” fee at lease-end as a kind of administrative fee for handling the return of the vehicle. The amount is typically about $350. The fee is not required, usually, if you choose to buy the vehicle at lease-end.
> Buying – There are no fees or charges at the end of loan.

MILEAGE FEES
> Leasing – Typical leases allow 10,000 to 15,000 miles per year. Additional miles may be purchased up front. Excess miles are charged at a rate of 15-25 cents per mile to compensate the lease company for the extra depreciation.
> Buying – Since you will own your vehicle at the end of your loan, any extra depreciation caused by high mileage is reflected in reduced resale or trade value for your vehicle. Miles aren’t free, regardless of whether you buy or lease.

WEAR AND TEAR FEES
> Leasing – If you have damages or excessive wear and tear at lease-end, you will be charged by the lease company for the repairs to restore the car to a good resellable condition. It’s better and less expensive to have the damages repaired yourself before returning your vehicle to the lease company.
> Buying – Since you will own your vehicle at the end of your loan, any extra depreciation caused by damages or excessive wear and tear are reflected in a reduced resale or trade value for your vehicle.

DEALER PROFIT
> Leasing – Dealer profit comes primarily from the negotiated sale price of a vehicle. Many customers don’t realize that lease prices can be negotiated and therefore give the dealer more profit than necessary.
> Buying – Most customers know that prices can be negotiated when buying, but often don’t. Fundamentally, buying and leasing offer a dealer the same profit potential.

BUSINESS / PERSONAL USE
> Leasing – Leasing offers similar benefits for both personal and business vehicle use. Business users can deduct lease expenses from taxes. Personal users cannot deduct.
> Buying – Buying is not as convenient for business users, who can deduct vehicle expenses, but not quite as easily as with leasing. Personal users cannot deduct.

FINANCING SOURCE
> Leasing – Dealers don’t finance leases. They hand off lease financing to the manufacturer’s finance company (Ford Motor Credit, GMAC, etc.) or a national bank. The finance company pays the dealer for the car and works out payment details with the customer. Independent lease sources are difficult to find.
> Buying – Dealers don’t finance loans. They hand off loan financing to the manufacturer’s finance company (Ford Motor Credit, GMAC, etc.) or a national bank. The finance company pays the dealer for the car and works out payment details with the customer. Independent loan sources are easy to find.

INTEREST RATES
> Leasing – Interest rates are about the same as for loans, and depend on your credit score. Lease rate is called “money factor” and can be converted to APR by multiplying lease rate by 2400.
> Buying – Interest rates are about the same as for leases, and depend on your credit score.

CREDIT REQUIREMENTS
> Leasing – Requires you have a good credit score, income, and reasonable debt. Lower credit scores will require a higher lease rate, and possibly a down payment and security deposit.
> Buying – Requires you have a good credit score, income, and reasonable debt. Lower credit scores will require a higher interest rate and higher down payment.

FINANCE COSTS
> Leasing – Total finance charges are usually higher for a lease than for a purchase with a loan. Low payments are slow at paying down the lease.
> Buying – Total finance charges are usually lower for a loan, assuming the same term. However, most loans have longer terms (in months) than most leases, which evens out total cost.

CALCULATING MONTHLY PAYMENTS
> Leasing – You can use an online lease calculator such as the one at LeaseGuide.com/calc.htm
> Buying – You can use an online loan calculator such as the one at AutoLoanCalculatorOnline.com

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Having bad credit means that sometime in your past, possibly as far back as seven or ten years, you have had missed or late loan payments, repossessed property or cars, or have declared bankruptcy. You may also have an excessive number of credit cards with high balances. These factors are included in your credit history reports that come from three credit reporting agencies: Transunion, Experian, and Equifax.

Your entire credit history is summarized in a single number, called your credit score. Your score can be different among the three agencies. You can get your FICO credit scores at FICO Scores/Reports .

Your credit score determines if you’ll get approved for a car loan, how much you’ll in interest, how much down payment you’ll pay, and even how much you’ll pay for auto insurance.

Credit score range from 300 to 850. A credit score less than about 680 is generally considered by most lenders to be “poor” or subprime credit.

How Bad Credit Affects You

Very few things in life can have a more devastating effect on your lifestyle than a poor credit score. A low credit score can cost you hundreds or even thousands of dollars per month.

Credit Cards

Most prime credit cards are entirely out of reach to consumers with bad credit. And the few credit cards that are available to them (known as “sub-prime” cards) typically require exorbitant setup fees or recurring monthly fees, offer very low credit lines, often require cash deposits, and in most cases do not even report your positive credit activity to the credit bureaus.

Automobile Financing

If you are making payments on a car, you are probably paying between $5,000 and $9,000 more just for having bad credit. This added interest shows up every month in a higher payment. Take a look.

What to do

Of course, the most important thing to do is start working on repairing your credit. However, you shouldn’t expect instant results. Meantime, you may have accept loan rejections, or having to pay high interest rates and make large down payments until your credit score gets better.

Getting a family member to co-sign with you on your car loan is the most common way to circumvent some of the problems of bad credit. A co-signer is not a co-borrower as a husband and wife might be. The co-signer is only there to make payments if you stop making payments yourself. The loan is yours and remains yours, even if the co-signer has to pay. Getting a co-signer is a great way to avoid some of the problems of poor credit, and gives you some time to build your credit back by making your payments on time.

If you can’t find a co-signer, you can look at buying your car from a dealer who specializes in working with people who have bad credit, such as Drivetime.com. They have over 78 used-car locations around the country and have a wide selection of cars to choose from.

Repairing Credit Yourself

The Fair Credit Reporting Act gives you the right to dispute any and all items on your credit reports that you feel classify as inaccurate, unverifiable, or misleading. If the bureaus can not verify that the information on your reports is indeed correct, then those items must be deleted.

Disputing items on your credit report is easy. Getting results from the credit bureaus is amazingly difficult, complex, and infuriating. It is not a coincidence that the Federal Trade Commission receives more complaints against credit bureaus than any other type of business. Remember, the credit bureaus are primarily interested in protecting their profits. Investigating your challenge consumes these profits. Short of sparking a mass number of lawsuits, the credit bureaus seem to do everything in their power to discourage consumers from making progress in their restoration efforts.

Restoring your own credit is like repairing your own transmission or representing yourself a court of law; it is possible, but you must decide if you are willing to take the time and assume the risks of doing it yourself. Most people get a professional company or attorney to help them. 

Summary

Buying a car with bad credit is possible but your choices may be limited. You could be refused if you credit is bad enough, or you could be required to pay a high interest rate and/or make a high down payment. Getting a co-signer is often the right solution. It not only allows you to get the loan at a good interest rate, but also helps you improve your credit score.

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