||Ask Dr. Don
Competitive lease rates
I have an excellent credit rating and a substantial net worth. What
effective interest rate should I expect to pay on a three-year automobile
lease with no down payment?
You should be able to get the same effective interest rate from
the leasing company that you could get on an auto loan. When you
think about it, that makes sense. Your credit rating isn't any different
between the two financing alternatives, the collateral is the same,
and the lender's cost of money should be virtually identical to
the leasing company's.
Selling VA disability benefits
I recently received a quote from a company that will buy 96 months
of my VA disability payment of $500 per month for a lump sum of
$19,404. Are these companies legitimate and would this be a wise
decision on my part?
There are firms out there that will buy future VA disability payments
from you. You have to be able to show that the payments aren't your
only source of income and there is an eight-year (96-month) limit
on the number of payments they can buy from you.
The firm may require that you buy or assign insurance
coverage to pay the company in case you die before they receive
all 96 disability payments.
From a financial perspective, it's a lousy deal for
you. The company that buys the payment stream for $19,404 earns
an effective annual return of 27 percent on their investment. Would
you invest in something that gives you a 27 percent guaranteed return?
I sure would. So why are you considering selling those payments
so someone else can earn 27 percent off your disability checks?
You can use the Bankrate's Loan Payment Calculator
to confirm the effective annual interest rate. Just input $19,400
as the loan amount, 96 months for the loan term, and 27.38 percent
as the interest rate, and you'll see that the payment is about equal
to $500. This means that 96 monthly payments of $500 are worth $19,400
today to an investor that requires a 27.38 percent rate of return
on his investment.
If they earned 12 percent you would be getting a check
for $31,000. The stock market has historically earned about 12 percent
annually and it's fraught with risk. Why should someone earn 27
percent off you, risk free?
In researching this topic I've seen references to
38, U.S. Code 5301 that state that the assignment of veterans
benefits to a third party for lump-sum payment are specifically
prohibited, but I also found several firms in the business of providing
you with that lump-sum benefit. I don't have a definitive answer
as to the legality, but I can be definite in telling you that they're
not a good deal.
In a press release earlier this year, Acting
Secretary of Veterans Affairs Hershel W. Gober said, " VA lawyers
are still studying the fine print in these schemes to determine
whether they are legal. Even if they're legal, they're despicable
because they take money away from people in the direst financial
-- Posted: June 25, 2001