Everyone always has questions. And sometimes these questions, and answers to these questions are common to everyone. So, to help improve the effectiveness of this program, this page includes a number of frequently asked questions and answers to further help your understanding of vehicle financing.

Q - Why do I need credit?

A - Building a good credit foundation is essential for buying homes, cars and many of the things you want.  Without it, you’re considered a credit risk.  Also, you often need a credit card to reserve and rent such things as automobiles and hotel rooms.  The convenience of shopping by phone or online is another reason to obtain a credit card.

Q - How do I establish credit?

A - You may establish credit by obtaining a gasoline or department store charge card and making payments on time.

Q - How do I keep good credit?

A – Having a realistic budget, keeping a moderate credit limit and paying balances every month are the keys to good credit.  When you’re starting out, credit companies will not give you a large credit limit, but you still have to be careful. Don’t extend your credit too far if you can’t make the payments.

Q - How much debt should I have?

A - Many credit counselors advise that monthly installment debt payments such as car financing or school loans and credit card payments (not including home mortgage) should not total more than 15-20% of your net monthly income. For example, if your monthly take-home pay is $1,000.00, you should be devoting no more than $200 a month to credit payments.

Q - How can I determine what vehicle fits into my budget?

A - Start with your monthly income after taxes and deduct your monthly expenses for fixed items like rent or mortgage payments, utilities and insurance.  Then subtract your flexible items such as food, clothing, credit card payments and recreation. The money that is left over can be used to help determine the vehicle you can afford.

Q - How can I reduce the amount I need to drive a new vehicle?

A - One option is to save as much money as you can for the down payment prior to financing your vehicle. After all, the more you put down on a new vehicle, the lower your monthly payment. Another option is to trade in your current vehicle. In some cases, your old vehicle will take care of your new vehicle’s down payment. Leasing is another alternative you should consider.

Q - Should I finance or lease my new vehicle?

A - If you like to drive a new vehicle every few years, need low monthly payments and prefer to avoid hassles, leasing could be for you.  If you prefer to keep a vehicle for a longer period of time, buying your vehicle may be the right decision for you.

Q - What are some other differences between buying and leasing a vehicle?

A - When you lease a vehicle, monthly payments are usually lower than monthly purchase payments for contracts of the same length because you are paying only for the vehicle’s expected depreciation during the lease term plus rent charges (like interest), taxes, and fees.  Additionally, other things to consider include:

Buying

You are responsible for any pay-off amount if you end the finance contract early.

Leasing

You are responsible for any early termination charges if you end the lease early.

Buying

You may drive as many miles as you want, but higher mileage will lower the vehicle’s trade-in value.

Leasing

Most leases limit the number of miles you drive often 12,000 – 15,000 per year). You can negotiate a higher mileage limit and pay a higher monthly payment. You will likely have to pay charges for exceeding those limits if you return the vehicle.

Q - How do I avoid large debt?

A - Learning how to spend your money wisely is the first step, according to financial planners. Keeping a spending diary is a good way to see what you’re buying and why, and can also help you set up a monthly budget. Gaining control of your credit cards is the next step. If you need your credit cards for convenience, strive to pay them off each month. If you can’t control your charging, cut up your cards. Lastly, become a smart spender. Look for sales, clip coupons, and stick to your budget. For most people, some debt is necessary. But keep it to a minimum. Reducing debt is one of the best avenues to financial security.

Q - What should I do if I can’t make a payment?

A - Contact the creditor immediately. In most cases, they will work with you depending on how much you owe. Try negotiating with your creditors to reduce payments. They would rather get small payments than none at all. However, if you find yourself in a situation where you don’t have the money for the bill, you should contact the creditor immediately.

Q - On average, what should I have saved for emergencies?

A - You should always have three months’ salary saved for occasions when you can’t make a payment.

Q - What can I do to improve my credit standing?

A -

• Make sure you pay back everything you owe as soon as you can
• Inquire at your bank about a consolidation loan. Then put away your credit cards except for emergencies
• Take steps towards committing to controlling your debt
• Make sure your credit reports are factual by checking with the credit reporting agencies

If you’ve had credit problems in the past, you might want to consider a secured credit card. These cards take away the risk to the lender, since the cardholder has money in the bank as security against default. This card can help re-establish your credit, and provide you with identification when you write checks.

Q - Where can I get a copy of my credit report?

A - Simply contact one of the three national credit-reporting agencies.  They are: Experian at 1-888-397-3742, Equifax at 1-800-685-1111, or Trans Union at 1-800-888-4213. If you have been denied credit, the reports may be free. Otherwise, the cost varies by provider. Keep in mind that every time you apply for credit, your financial history is closely scrutinized. It is important that there be no mistakes on your credit report. If you find an error in your credit report, be sure to contact all three credit bureaus to correct the error. The Fair Credit Reporting Act requires each credit agency to keep accurate records and investigate consumer complaints about information on their reports.

You can request a free credit report once every 12 months from each of the nationwide consumer credit reporting agencies: Equifax, Experian and TransUnion.

For information on how to request your free report and the implementation date in your state, go to www.annualcreditreport.com or call toll free (877) 322-8228.

Remember: If you move, be sure to file a change of address with the post office, and notify your creditors of the change. If creditors can’t find you, your account could become past due, and could damage your credit standing.