You have rights when borrowing money to buy a new or used car or truck. Two federal agencies, The Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC), have information to help you make smart moves when using loans to pay for new or used cars or trucks.
https://www.consumerfinance.gov/consumer-tools/auto-loans/
https://consumer.ftc.gov/shopping-and-donating/buying-and-owning-car
There are two kinds of car loans, Direct Lending and Dealership Financing.
Direct lending car loans come from a bank, finance company, or credit union. You will pay the amount loaned to you plus a finance charge. The finance charge is the interest on the loan.
The loan usually lasts somewhere from three to seven years. You may see this written in months, like 36 to 84 months.
See what kind of loans your bank offers. It may save you money over what a car lot offers.
You can shop around with other lenders for a better deal on a loan. Here are the advantages of a direct loan:
You apply for dealership financing through the dealer selling the car or truck you want to buy. Your loan with the dealer will say how much you agree to pay, the finance charge on the borrowed money, and how long the loan lasts.
The car dealership usually sells your car loan to a bank, finance company, or credit union. The company that buys your loan will service the account and take payments from you.
The advantages of dealership financing are:
If you get a loan, make sure you understand what you are agreeing to before signing any papers. You should know the following:
Yes. Shop around. It should be free to get a loan offer. You should get a few and compare the financing offers. Focus on more than just the monthly payment amount.
The Louisiana Motor Vehicle Sales Finance Act (La. R.S. 6:969.1) has rules for car and truck loans. It decides how high the interest can be on a loan. The most you can be asked to pay in interest is between 18% and 33%, depending on things like how old the car is. If you have good credit, your interest rate should be much less.
Find out more at La. R.S. 6:969.10.
Add the cost of the car loan on top of everything else you pay for every month, like your rent, mortgage, utilities, food, or other bills.
Example:
You have $1,500 to spend each month. After you pay your rent, utilities, food, and other debt payments, you have $150 left over. That means you cannot afford a $300 monthly car loan payment.
Owning a car has other monthly costs like gas, car insurance, and repairs. Insurance on a newer car is often higher than on an older one.
One rule of thumb: spend at most 10% of monthly take-home pay on a car loan payment and 20% monthly for total car expenses.
Here are more resources on figuring out what you can afford to pay for a car loan:
It’s a good idea to create a budget worksheet before starting the loan process: https://www.consumer.gov/sites/default/files/pdf-1020-make-budget-worksheet_form.pdf.
Most car loans are for 3 – 5 years. Creditors may offer longer-term loans, like 72 or 84 months, i.e., 6 or 7 years. Longer-term loans may also have higher rates (APR).
The more time you take to repay the loan, the more money the loan will cost you. Cars quickly lose value once you drive off the lot. Paying back money over a long time may mean you end up owing more money than the car is worth.
No, it is up to you. Add-on insurance is not required by law. It’s against the law for a lender to put credit insurance in your loan without your knowledge or permission. If you buy it, get a copy of the policy and keep it.
Be aware that buying insurance will increase the total cost of the loan to you since it will likely be financed in the loan. Consider the price and if it’s worth it.
Check your existing insurance policies to avoid duplicating benefits.
No. If you do, get all the details, including price, time of coverage, limits of coverage, and a copy of the policy.
Yes. You should try to get the best deal for yourself. By negotiating for better terms on your loan, you can reduce the amount of money you pay over time. For example:
If you do not like the loan terms, you can walk away.
If your credit history is limited or needs improvement, a co-signer with good or excellent credit could help lower your interest rate and may be required by the lender.
Some people have a parent, family member, or friend co-sign. Beware, the person who co-signs is legally saying that they are just as responsible as you are to repay the loan.
You both should think carefully about this decision. If you default on the loan, the co-signer will be sued like you since they are also responsible for the debt. This is true even if the co-signer does not use the vehicle.
Federal law generally prohibits a lender from requiring you to have a co-signer if you apply for a loan individually, and you can qualify under the lender's standards for creditworthiness for the loan.
No. In Louisiana, once the parties have agreed to the sales contract, it can be valid.
You can contact the local Better Business Bureau in your area to see if they can resolve your issues. In the Greater New Orleans area, their number is 504-581-6222.
For a new vehicle sale, you should contact the vehicle manufacturer.
See our other blog post about used car warranties here.
If it is a used vehicle, the Louisiana Used Motor Vehicle Commission “LUMVC” may be able to offer assistance. Call the office at 800-256-2977 or fill out a complaint form at: https://lumvc.louisiana.gov/wp-content/uploads/2019/02/Consumer-Complaint-Process.pdf.
You can’t stop making payments on the loan if there are problems with the vehicle. Payments are due until the loan is canceled.
A court can take money from your paycheck if you are working or order money to come out of your bank account or other money you have. This is called garnishment.
Garnishment can happen if someone sues you for money and you lose in court. If you are sued for a debt, take steps to protect yourself!
You will almost always lose if you do not reply to the case in court. If you lose the case in court, there will be a judgment against you. The winner can file papers to ask the court to “garnish” your money. They will look at your money situation and decide how much money to make you pay.
The Garnishment Judgment will order your job or bank to take money from your paycheck or bank account. The money collected this way will be more than you owe.
Louisiana law says how much of your money goes to pay the debt.
The amount depends on how much is left over in your pay after what your employer must take out for federal and state taxes, Medicare, Social Security, health insurance, and retirement.
Sometimes your employer takes money from your check for things not required by law, like optional insurance. That money is not safe from a court order taking it to pay a debt.
You earn $450 a week. If your employer takes out $120 for taxes and another $20 for optional dental insurance. ($450 - $120 = $310)
That leaves you with $310 each week. The law does not require dental insurance, so the $20 a week is not protected from garnishment. Only $330 is protected.
Then the court will look at the amount of money leftover in your pay in two ways and use the one that takes less from your paycheck.
The court must pick the smaller number after looking at the two examples above. In our example, it garnishes $82.50.
The court uses a different number for unpaid child support! The court picks half instead of a quarter of the money left after things like taxes.
Here is a link to a tool to help you figure out your garnishment amount: https://goodcalculators.com/wage-garnishment-calculator/
Most creditors cannot garnish any federal benefits, like Social Security. Only the federal government can take money out of a federal check to pay back a debt.
For more info: https://www.consumerfinance.gov/ask-cfpb/can-a-debt-collector-garnish-my-federal-benefits-en-1441/
Garnishment is different for student loans, taxes, and other things.
If you have unpaid federal student loans, the U.S. Department of Education or anyone collecting for it can only take up to 15% of your earnings after money is taken out for taxes and other things required by law. 20 U.S.C. § 1095a(a)(1).
If you have unpaid taxes, the Internal Revenue Service (IRS) can take money out of your paycheck without suing in court first. They do this by something called a “levy."
This amount of garnishment is based on your tax filings.
See here for more info: https://www.irs.gov/businesses/small-businesses-self-employed/information-about-wage-levies
There are ways that state and local government agencies can collect what you owe. Contact the agency that you owe to find out more.
The amount of the Garnishment Judgment will include the amount you owed, plus court costs, interest, and usually attorney fees from when the court made its Judgment against you.
You will also be charged:
These extra costs can be double or triple the amount of money you owed at the beginning.
The garnishment will continue until all the money owed has been paid. This can take years.
Garnishment will temporarily stop if you are no longer working for an employer. Once the person or company you owe (the creditor) finds out you are working again, they can start the garnishment again.
A bankruptcy filing will stop all garnishments right away. Bankruptcy may be able to get rid of the whole debt. Learn about bankruptcies here: https://www.uscourts.gov/services-forms/bankruptcy
Other resources can be found here:
https://www.dol.gov/general/topic/wages/garnishments
https://www.consumerfinance.gov/ask-cfpb/what-is-a-garnishment-en-1385/
For information on Louisiana State garnishments: https://revenue.louisiana.gov/Faq/Details/1293
If you own your home and are 62 or older, a reverse mortgage loan could help you with significant bills, renovation costs, and other living expenses.
If you are interested in one, please take your time to review and fully understand it. This may not work for everyone. You should also discuss this decision with your family and your heirs, usually your children.
Yes, it differs from other mortgages, but it is also similar. Like other mortgages, it allows homeowners to borrow money using their home as security for the loan. The title stays in your name, but your property will have a loan against it.
Like other mortgages, you could lose the home to foreclosure if you fail to pay for required items such as property taxes and insurance (homeowners or flood).
But unlike other mortgages, you do not make monthly mortgage payments to the lender. The loan gets repaid when you no longer live in the home, usually after your death or sooner, if you sell the property. If one spouse dies, the repayment usually occurs after the second spouse dies. But certain papers may have to be completed promptly when the first spouse dies.
Because interest and fees are charged to the loan each month, the amount owed on the home grows over time. As the amount you owe grows, the amount of equity (what you can get by selling the house) goes down. This is unlike most mortgages, where the amount owed goes down because you pay each month.
A reverse mortgage loan is NOT free money. It is a loan on your house. If you want to fully own the house, you will have to pay back the entire loan amount, including the interest that has been charged.
If your heirs want the house, they will have to pay off all that is owed, including the interest charged over time. Most reverse mortgages give them a year to pay the amount.
NOTE: Most of this information only applies to Home Equity Conversion Mortgages (HECMs), the most common type of reverse mortgage loans.
In addition to being at least 62 years old, there are a few other requirements:
Only one spouse needs to be 62 years old to qualify.
Before taking out a reverse mortgage, make sure you understand this type of loan. You may want to look at other borrowing and housing options, such as:
Other resources can be found here:
https://www.consumerfinance.gov/consumer-tools/reverse-mortgages/
https://www.aarp.org/money/credit-loans-debt/reverse_mortgages/
Are you a survivor of Hurricane Ida? Is there a problem with your help from FEMA?
The deadline has been extended to June 1, 2023 to appeal FEMA Denials!
Here are some examples of issues you can try to fix with FEMA:
You can file an appeal if you have any of these issues or if you have new evidence to show FEMA.
You can file an appeal even if the deadlines have passed on your paperwork. With the appeal, give FEMA the reason why you are late.
Your appeal must be in by June 1, 2023.**
If you need help with an appeal or other Hurricane Ida issue, please call Southeast Louisiana Legal Services at 1 (844) 244-7871
** In some cases, you can file an appeal in Federal Court after this date, but we advise caution. We recommend consulting with an attorney if you need to appeal FEMA’s decision higher.
You should check your bank statements carefully every month. Contact your bank or credit union right away if you see a problem. A problem could be money taken out without your permission or purchases you did not make.
Do not wait. Contact the fraud department of your bank or credit union right away. If you wait too long, you might be stuck with the bad charge.
You may have more rights to challenge the problem if you tell the bank or credit union within 60 days after the statement that shows the problem. If you report it later, you still may be able to get a charge removed unless your bank has a reason why notice within 60 days would have made a difference.
Your bank or credit union must look into the issue within ten business days after you tell them about the problem. They have 20 days to look into it if your account has been open for less than 30 days.
If they find a mistake, they one business day after that to fix the error. They have 3 business days after that to contact you and report their findings. If they on time, they must give you a temporary credit.
This temporary credit is for the amount of the bad charge, minus no more than $50. It stays there while the bank or credit union looks into the problem.
The bank or credit union doesn’t always have to issue a temporary credit. If you alert the bank or credit union by phone, they can make you send this information in writing. If they say to report it in writing and you don’t send the information within 10 business days, they don’t have to give you the temporary credit.
The bank or credit union has at least 45 days to resolve the problem. They get up to 90 days if the money changed hands in a foreign country, if the problem happened within 30 days of opening the account, or if the problem deals with a debit card purchase.
The bank or credit union may find that the transaction was correct. They must tell you in writing that they are taking back the money credited to your while they looked into it.
Yes, it is a good idea to contact the store and dispute the purchase.
Tell your bank or credit union right away or at least within two business days of finding out about the loss or theft. If you meet the deadline, they cannot charge you for more than $50 that gets charged after the card was stolen or lost. If you miss the deadline, you could be responsible for up to $500 of the charges.
You cannot be charged for any of the charges if you report your card as lost or stolen before it is used by someone else.
Never write your PIN on your debit card. Do not keep the PIN in your wallet. This can help protect you if your card or wallet is lost or stolen. Use a PIN that only you can remember and no one else would know.
Most credit card companies will not make you responsible for any charges after loss or theft.
Contact your bank or credit union as soon as you can and contact the merchant to cancel the service. Tell them that you are taking back authorization for these charges.
Include information to help the bank identify the charges. Tell them the name of the merchant, your account number with the merchant, and the amount(s) and date(s) of the charge(s).
You can also ask your bank to place a stop payment on a pre-authorized transaction at least 3 business days before the next payment is scheduled to be made. They may charge a fee. You should ask for the stop payment in person at the bank or in writing.
You can file a complaint with the Consumer Financial Protection Bureau (CFPB). The CFPB is a federal government consumer protection agency.
More info is here: https://www.consumerfinance.gov/complaint/process/
If your bank is licensed in Louisiana, you can also file a complaint with the state here: http://www.ofi.state.la.us/complaints.htm
Other resources: https://www.helpwithmybank.gov/help-topics/bank-accounts/index-bank-accounts.html
New rules can help people cancel federal student loans in bankruptcy. The law calls this getting a debt “discharged.” The U.S. Department of Justice and the U.S. Department of Education will help with the new rules. This applies to bankruptcy cases filed after November 17, 2022. Bankruptcy is complicated. Get a lawyer to help you if you can. You may qualify for free legal help from Southeast Louisiana Legal Services.
The law makes it hard to discharge federal student loans in bankruptcy court. A person must prove that repaying the loans creates “undue hardship.” It is hard to prove “undue hardship.”
The Justice Department will help United States Bankruptcy Courts find cases where federal student loans should be discharged.
There are multiple kinds of bankruptcy cases. You must file for bankruptcy under Chapter 7 or Chapter 13. For more about bankruptcy, see our other post on “Bankruptcy Basics.”
Find a lawyer to help you if you don’t know if you should file for bankruptcy or what kind of bankruptcy case to file. It is always best to have a lawyer if you can.
In the bankruptcy case, you or your attorney have to file for an “Adversary Proceeding” to have the bankruptcy court consider canceling your federal student loan.
The Justice Department will ask the person filing for bankruptcy (the “debtor”) to complete a form. Your answers will help the Justice Department review your federal student loan discharge claim.
The form will ask about the money situation for you and your household. Most of your income and expense information is probably already in the bankruptcy court papers.
The Justice Department and the Department of Education will review your federal student loan claims and money situation and use the “undue hardship” test mentioned above.
The government will decide whether to ask the court to discharge your student loans. Even if your situation does not seem to meet the test, the government can still ask the court to discharge the loans.
Not if you use bankruptcy court. There are no additional court costs once you have filed in U.S. Bankruptcy Court.
The new rules cover Direct Loans and other loans held by the U.S. Department of Education.
So far, the new rules do not apply to Federal Family Education Loans (FFEL) held by guarantors or to Perkins Loans still held by the school.
The new rules do NOT apply to any private student loans.
Pay attention to the news. The Department of Education may change rules for FFEL and Perkins loans. Or you can get an attorney to help you review your student loans and determine if a Chapter 7 bankruptcy is right for you.
The United States Supreme Court states that Bankruptcy is meant to provide "a new opportunity in life, unhampered by the pressure and discouragement of pre-existing debt." It is intended to give people a fresh financial start. It allows them to free themselves of current debt and to start new productive lives unhampered by past financial problems.
Filing bankruptcy cannot cure every financial problem and is not appropriate for every individual. But it may make it possible for financially distressed families to obtain relief from debt.
Individuals can either file Chapter 7 or Chapter 13
A Bankruptcy may end your having to pay much or all of your debt. This is called “discharging” the debt. You are no longer legally obligated to pay debts when they are discharged.
It may stop foreclosure proceedings on a home and allow you to catch up on payments.
It may force a creditor to accept less payment on a secured debt when the creditor has demanded payment in full.
It will immediately stop any garnishment of your wages and debt collection harassment.
It will immediately stop all current legal proceedings about whether you owe money, such as lawsuits.
A Bankruptcy might not allow you to keep things you have that are pledged in a note (such as your home for a house note or car for your car note).
It will not allow you to get out of debts owed to some government agencies, like child support, alimony, most student loans, criminal fines, and most taxes.
It will not protect co-signors when only the person who made the loan files for bankruptcy. Your co-signor still owes the full amount.
It will not end any debts obtained through fraud or intentionally injuring someone.
Under current bankruptcy law, the debtor's "current monthly income" will determine if they can file under Chapter 7 or must file under Chapter 13. This is known as the “means test.” Each state has a table used to decide this. In Louisiana, for a household of 2, the yearly income limit to file a Chapter 7 is $61,042. So, if your gross income is below this amount, you can file a Chapter 7.
But as noted above, how much you own in secured assets and other issues can also make you need a Chapter 13.