Auto Loans Weblog

Some consumers prefer to lease a car instead of buying a new one. Some of the advantages of leasing are:

• if you get bored of cars you can trade in for a new one every few years
• depending on your credit many leases have a much smaller down payment requirement than purchasing a car
• if you are trading your car in every few years that means that you typically will not have to deal with the problems associated with cars aging
• you do not have to pay sales tax on the whole care upfront when leasing a car
• many leases offer an option to buy

some of the downsides to leasing are:

• if you return the car damaged you may be charged for repairs and restoration
• if you are the type who likes to modify your car some leases have restrictions against it
• most leases have a maximum mileage. If you go beyond your maximum mileage some leases charge upwards of 10 to 30 cents a mile.
  

There are many hidden costs to the leasing process too

• some leases have a balloon payment and the end of your lease
• you may end up having to argue over what constitutes normal wear and tear
• you typically can not sublet your car
• early termination fees

While at first glance leasing a car might seem like a better deal than buying one make sure you consider all your options before signing on.

Interest rates are calculated based on the likelihood you will be able to pay your loan off on time. Strange events can happen, but typically the best way for banks to guarantee they will get their money back are

• to only loan to qualified people, and
• look at their recent history to see if they qualify

Your FICO credit score and dirivative measurements are designed to measure the risk of default, by taking into account various factors. Although the exact formula for calculating the FICO score is a closely guarded secret, Fair Isaac has disclosed the following components and the approximate weighted contribution of each:

• 35% punctuality of payment in the past
• 30% capacity used, i.e., ratio of current revolving debt (e.g. credit card balances) to total available revolving credit (e.g. credit limits)
• 15% length of credit history
• 10% types of credit used (installment, revolving, consumer finance)
• 10% recent search for credit and/or amount of credit obtained recently

If you have a low FICO score (less than 600) you may not be able to get a loan or you may be charged a much higher than average interest rate. The two best ways to fight that off are

• improve your credit (which can take a great deal of time), or
• get a co signer who has a great credit rating

It takes a good amount of trust for a co signer to sign off on your lease, and they are taking a huge risk when they sign on for you. If you default on the payment they are stuck paying for it.