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Ask Dr. Don

Ask Dr. Don

Auto leasing

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?
Bobby Bundle

Dear Bobby,
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.

Credit reports

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?

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Dear Jennifer,
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.

Experian, 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.

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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

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