Good Questions About Loans and Debt

Should I get a car loan or pay cash?

The cheapest way to purchase a car is with cash. This way you only buy what you can afford and you will not have to pay any finance charges. However, many people cannot purchase a car without sometime of financing or buying a used car instead. If you opt of buying a used car because you can pay cash, you may find that you are paying more for repairs and that the car had several problems that the owner did not tell you about or that they were unaware of at the time of purchase. You should weigh the pros and cons in your case to learn if you can afford monthly payments to purchase the car you need or if you can fork out money for repairs.

If I decide to get a car loan, what will my monthly payment be?

The best way to learn what your monthly car payment will be is to get the amount you are financing, the interest rate and the term of the loan. You can get this information from either the car dealer or the lending company. Finding an automobile payment calculator online is very easy by just using your favorite search engine. Do not forget the amount that you are financing may include taxes, delivery charges, title and registration fees, and other add-ons like service agreements, credit life insurance, and extended warranties. The best way in which to lower your monthly payments is by putting more down for your down payment. You can also search around for a better deal if you believe that the payments are higher than you think they should be.

You may consider leasing a car instead of purchasing. This may make your car payment less, but you are not purchasing the car. You are only for the depreciation of the car's value over the period that you plan to use it (plus a lease fee). This one is a bit harder to figure since it is based on the car's expected depreciation over the lease term. The amount will vary according to the make and model of the car. Learn more about financing a car.

What about leasing a car?

This is another one of those personal questions that each person has to figure out on their own. You will have to decide which option is best for you. Car leases normally are for 2 to 4 years and this gives you the chance to have a new car after the term is up. However, if you would like to keep the same car until it cannot go any farther then you should purchase. When you lease a car, the payments are based on the car's expected depreciation over the lease term, while purchasing the car the payments are based on the total purchase price of that car. The lease payments may be lower than the payments to purchase the same car and you will not have to come up with a down payment. In addition, when you lease a car you should be very careful how you take car of the car. Remember, you are only renting the car and most of the time; you must pay for any non-warranty repairs (e.g., a dent in the door). When you purchase a car and get a ding in the door, you may wait to repair it.

Should I file for bankruptcy?

Before you rush out and file bankruptcy because you cannot pay your bills you should look at your other options. If you cannot pay your bills because of a temporary set back, such as an illness or unemployment, you may wish to reduce the amount of money you are spending, cut back on your expenditures. You should also look into taking advantage of public or unemployment assistance or even liquidating your assets.

You can also look into debt restructuring. This involves maneuvering your loan balances, interest rates, and repayment terms so you can meet your monthly expenses and still pay off your creditors in a reasonable amount of time. You can hire a professional credit counselor to help you with restructuring your debts. They will work on your behalf with all creditors to negotiate affordable payments terms. If you are unable to hire a credit counselor, you can contact your local Consumer Credit Counseling Service or other nonprofit credit counseling services in your area to help you. These companies will give you the same services with a small cost and in some cases for free.

If you still see no end and have decided on filing bankruptcy, you will be able to remove most of your outstanding debt with a Chapter 7 bankruptcy. You will have to surrender all of your assets and they will be sold so all money that is collected with be divided among your creditors. A Chapter 13 bankruptcy may be a better choice if you are a wage earner. With this type of bankruptcy, you will ask the court for approval of a repayment plan which will pay off all of your creditors over 36 to 60 months. Learn more about bankruptcy.

Am I responsible for my spouse’s debts?

Most of the time, you are not responsible for one another’s debts; however there are exceptions to the rule. If the debt is a family expense such as groceries or childcare, both are held responsible. Community property is also a debt that is incurred by both since both have equal rights to the property. You are also responsible for any debt that has both names on the loan such as home equity loan, credit cards and mortgage loans.

I am getting married to someone with bad credit. Will this affect my credit?

You are not responsible for any debt that your future spouse has incurred prior to the marriage unless you choose to become involved. However, once you are married and are applying for a loan together, lenders will look at the credit history of both of you before determining to accept your application.

It would be best to keep your credit separate until your spouse can improve their credit. You do not have to combine your credit just because you are getting married.

How do student loans show up on my credit report?

The rule of thumb is that all student loans show up as separate loans for each lending period. ). For example, if you take out 8 small student loans over the course of a four-year education (2 semesters a year, for 4 years), these will show up as 8 loans on your credit report. It may look better on your credit report if you would consolidate these loans into one loan. This way, each loan will show up as paid and you will also be saving money by consolidating with a lower interest rate.

Take a look at our article about credit scores and student loans. Or visit www.loanconsolidation.ed.gov or for other ways to pay off your student loans you can visit www.finaid.org/loans/forgiveness.phtml.

Should I get a home equity loan to pay off my student loan early?

There are advantages and disadvantages when it comes to getting a home equity loan to pay off your student loans. Advantages include – home equity loans usually have longer terms than student loans, which can make your loan payments lower, and you may be able to deduct all the interest you pay on your home equity loan on your tax return if you itemize your deductions. Disadvantages include – you will more than likely be paying a higher interest rate with a home equity loan.

You should also understand that a student loan is an unsecured debt and your home loan is a secured debt. If you cannot pay back your home equity loan, the lender can foreclose on your home. Read our article about paying for college.