| Ask Dr. Don
Dear Dr. Don:
I am leasing a 1998 car. I traded in a van that I was purchasing
because I felt that it wasn't worth the payment I was making. I
turned it in before the warranties had expired, and it was in great
condition. In a hurry to trade in the van, foolishly I allowed the
dealer to add the amount due on the van to my lease of the new vehicle.
I now am leasing a vehicle where the balance far exceeds the value
of the vehicle. I don't want to get to the end of the lease and
still pay more to purchase the vehicle. I would like to purchase
the vehicle before the end of the lease and pay off the loan. What
would you suggest?
As you point out, being upside-down
in your van added to the capitalized cost of your lease and now
you are upside down in your lease. You can contact the finance company
and ask for a payoff balance on your lease. That payoff balance
will be the remaining capitalized cost of the lease. By paying the
balance, you'll own the car and stop paying finance charges.
When you're upside down in a car and roll that
negative down payment into a loan or lease on a new car, you're
going to have higher payments. Sooner or later you have to take
your medicine and pay the balance of the original loan. If you have
the money to do it now, you'll save the finance charges. You'll
also get your security deposit back when you purchase the car out
of the lease.
Dear Dr. Don,
My husband and I have been using a credit agency for a
year now to pay off our credit-card debt. We have been making our
payments as agreed upon. I have heard that using a credit agency
will affect our credit the same as if we had filed bankruptcy. We
have a lease on a vehicle that will end in the next 12 months, and
we are looking to purchase a vehicle. Is it going to be possible
for us to get an auto loan without paying 21 percent interest?
Using the credit agency will affect your credit but not the same
as if you filed bankruptcy. The credit problems that you had before
going to the credit counselor aren't wiped off your credit report.
The length of time that the information stays on your credit report
is five to seven years, which is similar to a bankruptcy.
one of the three credit bureaus, says the following on its Web site:
"To prevent past errors from haunting you forever, most negative
information must be erased after seven years. This includes late
payments, accounts that the credit grantor turned over to a collection
agency and judgments filed against you in court -- even if you later
paid the account in full. The length of time a bankruptcy remains
on your credit report depends upon which type you file. Chapters
7, 11, and 12 remain for 10 years. Chapter 13 remains seven years."
So the length of time that this information
stays on your credit report is similar to a bankruptcy, but lenders
won't look at the two the same way. You are taking responsibility
for your indebtedness, and working with creditors to pay your obligations.
You'll pay a higher rate for your next loan, but you shouldn't have
to pay 21 percent. If your leased car is serving you well, check
out extending the lease term as a method to avoid finding a new
lender to extend you credit at higher rates.
Bankrate.com writers base
their answers on our editorial content and advice of financial professionals.
We make no claims or representations about the accuracy, timeliness or completeness
of such content, advice or the answers provided to you. Our content, advice
and answers are intended only to assist you with your financial decisions. However,
by its nature such information is broad in scope. Your financial situation is
unique, and our content, advice and answers may not be appropriate for your
situation. Accordingly, we recommend that you get different opinions and seek
the advice of your accountant and other financial advisers before making any
final decisions or implementing any financial or investment strategy.
-- Posted: March 1, 2000