Regulation Z is a consumer-protection regulation that compels lenders to disclose the cost of credit in a clear way for consumers.

Whether you’re applying for a mortgage or dealing with a credit card company, Regulation Z —which is part of the Truth in Lending Act — requires credit issuers to make meaningful disclosures of the cost of credit and to enable consumers to make informed choices about the loan terms and interest rates they’re offered.

Let’s look at how Regulation Z applies to different types of credit and how the rules aim to protect consumers.

• What is Regulation Z?
• Important provisions of Regulation Z
• Special rules for mortgage lenders
• How does Regulation Z apply to credit cards?
• What does Regulation Z say about record retention?

What is Regulation Z?

In 1968, Congress passed the Truth in Lending Act. Regulation Z is the regulation that actually implemented the Truth in Lending Act. Regulation Z and the Truth in Lending Act relate to the same consumer-protection rules regarding how lenders issue credit.

Regulation Z helps ensure that lenders give consumers material credit information that’s clear. Thanks to the Truth in Lending Act, lenders now should use similar terminology, so comparing loans is easier than it was before.

Over the years, Regulation Z has changed more than a dozen times. One of the most important changes was made in 2011, when Congress gave the Consumer Financial Protection Bureau rulemaking authority. The CFPB now helps shape how the Truth in Lending Act is enforced.

Important provisions of Regulation Z

Regulation Z doesn’t dictate whether lenders must grant a certain loan. Instead, it requires lenders to clearly disclose certain interest rates and fees, using similar terminology.

Regulation Z also regulates certain credit card practices, establishes a process for resolving credit-billing disputes fairly and in a timely manner, sets rules around certain types of home loans and home equity lines of credit, and addresses certain types of credit card account charges.

Special rules for mortgage lenders

In addition to general regulations aimed at both open-end and closed-end credit issuers, Regulation Z also includes some additional provisions for certain mortgage lenders.

Restrictions on how mortgage originators are paid

Regulation Z generally bars mortgage lenders from compensating loan originators (the people or organizations who originate a loan) for getting borrowers into a particular type of loan.

The originator’s compensation can be based on the total dollar amount of credit extended, but not on terms or conditions of the loans. For example, a financial institution can pay an originator more for closing a total volume of $3 million in credit over time than it would for $1 million, but can’t differentiate its compensation based on a 4.7% APR versus a 3.5% APR.

Prohibits steering

When it comes to taking out a mortgage, you want to apply for the best mortgage for your situation — not the one that will pay your mortgage broker the highest commission. Regulation Z prohibits loan originators from steering you toward a particular loan because it will earn them more money (although this rule doesn’t apply to open-end home equity lines of credit or time shares). But the law does allow an originator to steer borrowers if the final loan deal is “in the consumer’s interest,” so it’s important to understand and consider all aspects of a loan on your own. This does not apply to open-end home equity lines of credit or time shares.

Loan estimates and closing disclosures

Since mortgages have many moving parts, Regulation Z requires mortgage lenders to give borrowers two sets of disclosures when they’re financing a real estate transaction for most closed-end consumer mortgages. These are designed to help you understand the true loan cost of the mortgage.

A Loan Estimate details important information about the loan you’ve applied for, including the loan amount, interest rate, monthly payment, closing fees and more. You can see an example of a loan estimate on the CFPB website. The second set of information is the Closing Disclosure, a five-page form that gives information to help you understand all the costs of the transaction, including the loan terms, how much you can expect to pay per month, fees and closing costs. You should always compare the two statements before closing on a mortgage transaction.  Other disclosure forms may be required for other types of mortgages (e.g., home equity line of credit).

Restrictions on higher-priced mortgage loans

Because higher-priced mortgages tend to be more expensive for borrowers than a mortgage with average terms, Regulation Z adds a few extra requirements for high-priced mortgage loan lenders. For example, the home may have to be appraised by a licensed or certified appraiser, and your lender must pay for a second appraisal if the home is a “flipped” house (meaning the seller purchased the house less than six months ago and you pay a certain amount more than the seller paid, depending on how long ago the seller bought it). In many cases, the lender also must maintain an escrow account for insurance and taxes for at least five years.

How does Regulation Z apply to credit cards?

One of the most significant changes to Regulation Z was the passage of the 2009 CARD Act. The new rules implementing this change aimed to protect cardholders from unfair practices associated with certain lenders in the credit card industry. Here are a few of the important changes that came out of the CARD Act. There are many more not covered here. And besides the rules implementing the CARD Act, there are many other sections of Regulation Z that relate to credit cards.

Disclosures of rates and fees

Before you open a new credit card, the credit card issuer must have pricing information (like interest rates and fees) readily available in a single document called an addendum. Additionally, the issuer must promptly provide a copy of the cardholder agreement to the cardholder if the cardholder requests a copy. There are some exceptions for card companies having to comply with these requirements.

Limits on upfront fees

Some credit cards have annual fees or other costs just to open the credit card. The total amount of these fees can’t be more than 25% of the initial credit limit when you opened the card account. For example, if a credit card has a limit of $300, the total upfront fees can’t exceed $75 in the first year. This rule can help people who are building credit, and who may have limited income that makes it difficult to absorb high up-front fees.

Priority goes to highest-interest debt first

Sometimes credit card lenders charge different interest rates for different types of debt. For example, a cash advance may have a higher rate than a purchase, while a transferred balance might have a lower rate. If you have a credit card account with different rates applied to different types of debts within the same account, and you pay more than the minimum monthly payment, the excess amount must be first applied to the balance with the highest APR. Then any remaining portion should be applied to the other balances in order from highest to lowest APR.

Limits liability for unauthorized credit transactions

The Fair Credit Billing Act, an amendment to TILA (which Regulation Z implements), can provide some help if someone steals your credit card (or your credit card number). Under the Fair Credit Billing Act, credit card holders can’t be held liable for more than $50 in unauthorized credit card transactions. Just remember, this only holds for unauthorized transactions. If you or an authorized credit card user makes some regrettable purchases, you still have to pay for those.

Timely billing

Credit card issuers must ensure statements are delivered to the consumer at least 21 days in advance of the payment due date shown on the statement.

Help understanding repayment

Regulation Z rules govern how credit card issuers may calculate minimum monthly payments, unless the card is secured by a home. There are additional requirements for three-year repayments. On every monthly credit card statement, the card issuer must …

• Include the following statement: Minimum Payment Warning: If you make only the minimum payment each period, you will pay more in interest and it will take you longer to pay off your balance.
• Provide an estimate of how long it would take you to repay the debt if you made only minimum payments. If the estimated repayment time is less than two years, the estimate must be expressed in months.
• Estimate the total cost over the life of the debt (including interest and principal) if you paid only the minimum each month
• A toll-free number where consumers can get information about credit counseling services

Restrictions on advertising to college students

Prior to the 2009 CARD act, credit card issuers were able to market on-campus to college students with fewer restrictions. Now, credit card issuers face stricter rules regarding marketing and issuing credit cards to college students.

What does Regulation Z say about record retention?

When it comes to keeping records, lenders are on the hook for keeping loan contracts. In general, lenders have to keep records for two to five years after the date the disclosures need to be made or action is required. How long they have to keep them depends a number of things, including the type of loan. Although lenders have to keep their records, it makes sense for you to keep copies of closing disclosures and signed agreements too. Then if you have a dispute, you can present your documents as evidence.

Bottom line

Regulation Z rules aim to put power into the hands of borrowers by requiring lenders to provide clear and consistent information about their credit products. However, it’s on consumers to take the time to read the disclosures and all the key terms of the credit you’re applying for.

Reading through all of the information provided may be a pain, but it exists to help you. Take advantage of Regulation Z and arm yourself with information before you apply for a loan or credit card that falls under Regulation Z.

Buying a car is a big deal. If you’re tech-savvy and want to skip the stress of a dealership, you can go online to research your new ride, shop for a vehicle and apply for an auto loan.

So which car-buying sites can you turn to when you’re shopping for your next car? We scoured both established and up-and-coming sites to evaluate the best car-buying sites — whether you want to buy a vehicle online, do preliminary research or compare dealerships. We’ll explain the pros and cons of each site so you can navigate the digital car-buying experience with more confidence and find your best options.

• Best sites for buying directly online
• Best sites for researching before you buy
• Best peer-to-peer car-buying sites
• Best sites for comparing dealerships
• Tips for online car shopping

Best sites for buying directly online

Want to do all your car shopping in your jammies? Some sites make it possible to buy a car online and have it delivered to your door. Each site has different warranties and terms, so be sure to understand a company’s policies before you buy from it.

EBay Motors

Want to buy a car from a private seller? Bidding on a vehicle through eBay Motors could help you snag the car you want. The site offers a nationwide selection of vehicles and free vehicle purchase protection for eligible car purchases completed on the platform.

That means if your car qualifies, your costs will be reimbursed if you never receive the vehicle you bought or if there are issues with the title that were undisclosed. It also protects against eligible damage on the transmission, engine or body of the vehicle.

But these protections won’t account for everything that could go wrong with your purchase. Outside of covered components, you’ll have to deal with the consequences.

Pros

• You can buy from private sellers nationwide
• You get certain protections for covered situations
• You can apply for financing through RoadLoans.com
• You have access to new and used vehicles
• Winning a bid is not a contract to buy

Cons

• No returns
• No protection against certain undisclosed problems
• No guarantee that you’ll win the auction

Carvana

Carvana is a car-buying site that lets you pick the car you want from its selection of used vehicles. You can also apply for prequalification for a car loan through the site and have the vehicle delivered, depending on where you live. In certain markets, you can pick up your purchase from a futuristic-looking car vending machine.

Pros

• You can apply for auto loan prequalification on the site
• All vehicles include a 150-point inspection
• Seven-day return window
• Limited warranty of 100 days or 4,189 miles, whichever comes first
• Trade-ins may be accepted

Cons

• No flexibility on pricing
• May have to pay a shipping fee
• Delivery not available in all markets
• Co-signers not accepted through Carvana financing (though outside financing is allowed)

Vroom

Vroom is a competitor to Carvana that will deliver a used vehicle directly to your home. You can browse cars online and apply for financing on the site.

Pros

• Vehicles can be delivered to you
• Free vehicle history report on all vehicles
• You can apply for financing online
• Trade-ins may be accepted (including pick-up)
• 90-day limited warranty
• Seven-day or 250-mile return window

Cons

• $499 shipping fee
• Delivery typically takes seven to 10 days after purchase

CarMax

CarMax touts the extensive inspections its cars undergo. Like its competitors, CarMax offers a number of purchase protections, including a seven-day return window, a limited warranty on all cars and the option to purchase a comprehensive service plan.

Pros

• Car can be delivered to you for test driving (fees may apply)
• Apply for financing through the site
• Free vehicle history reports
• Seven-day return window
• 90-day or 4,000-mile, whichever comes first, limited warranty
• Stores across the country if you prefer an in-person experience

Cons

• No price negotiations
• No pricing guidance to determine whether a price is a good deal
• May have to pay a shipping fee to see a car

Shift

Shift promises that it extensively inspects all the vehicles it sells. If you live in the company’s service area, you can test drive the car before you decide whether to buy. Shift sets vehicle prices using an algorithm, so pricing isn’t up for negotiation. But Shift’s warranty policy isn’t as generous as some of its competitors’ policies.

Pros

• No haggling over price
• Trade-ins accepted
• You can apply for financing through the site
• Five-day or 200-mile return policy

Cons

• Limited service areas: Los Angeles, San Francisco and San Diego
• Prices are firm

Best sites for researching before you buy

Whether you want to buy used or new, research is an important first step in the purchase process. These sites can help you learn more about the vehicles you’re thinking about buying and allow you to compare prices. 

Consumer Reports

Looking for independent reviews of new and used cars? Consumer Reports is a nonprofit organization that reviews products across many categories, including autos. The site provides tips and tools to help you with every step in the car-selling and buying process.

New-car buyers may want to use Consumer Reports’ car-buying service, which allows members to see what local buyers paid for similar new cars.

Pros

• Nonprofit organization
• Used-car marketplace provided by Cars.com
• Offers a car-buying service through TrueCar
• Has a car repair estimator tool

Cons

• Must pay to be a member to see full reviews

Edmunds

Edmunds is one of the premier sites that offers expert reviews and pricing insights to help when you’re car shopping. Its car comparison tool ranks vehicles using measures like consumer ratings, fuel economy and ownership costs.

But Edmunds isn’t just for research. The site also serves as a vehicle marketplace where you can find new, used and certified pre-owned vehicles in your area. Edmunds ranks vehicles on the site using a deal-rating score to help you judge if the price is fair.

Pros

• Reviews from experts
• Cars purchased through Edmunds may qualify for a 30-day or 1,000-mile warranty
• 12-month roadside assistance with select vehicles

Cons

• You can’t buy directly through the site
• No private-party listings

Autotrader

Autotrader, another research-oriented site, has a used-vehicle search engine that allows you to find a car that suits your budget. You can filter for the type of vehicle you want and the distance you’re willing to travel to pick up the car. Both dealers and private parties can advertise on the site.

Pros

• New, used and certified pre-owned vehicles
• Option for cash offer or trade-in on eligible cars
• Compare both dealer and private party cars

Cons

• Not all cars have free history reports
• You can’t buy directly through the site
• Doesn’t guarantee transactions facilitated through the site

Kelley Blue Book

Looking to sell or trade in your current vehicle before buying? Kelley Blue Book, which is owned by Autotrader, has been giving people visibility into car prices since 1926. You can use Kelley Blue Book values to understand what may be a fair price for your existing car. Then you can use Kelley Blue Book’s pricing estimates for new and used vehicles to negotiate a price for your next car.

Pros

• Vehicle marketplace where you can find new, used and certified pre-owned vehicles
• Option for cash off or trade-in credit on eligible cars

Cons

• Not all cars have free history reports

Best peer-to-peer car-buying sites

These days, it’s rare to spot a “For Sale” sign on a car in somebody’s front yard. But that doesn’t mean you can’t find a reasonable used car in your neighborhood. It’s just that the “front yard” has moved online. These sites allow you to find used cars for sale from regular people in your neck of the woods.

Just remember, many sellers on these sites are individuals. That means you need to consider your safety when taking a vehicle for a test drive. Consumers for Auto Reliability and Safety offers tips on staying safe and avoiding scams if you’re buying a used vehicle.

Craigslist

Despite its old-school user interface, the site is still a go-to option for private party vehicle sales.

Pros

• Find private sellers near you
• Browse offers to find a vehicle that suits your budget
• Refine your search by features like price, make, model year and miles on the odometer

Cons

• Seller not vetted by a third party
• Must arrange financing on your own or pay cash
• No third-party guarantee for the purchase

Facebook Marketplace

Looking to buy a used car from someone you don’t know? Along with dealerships, individuals can also list cars on Facebook Marketplace.

Pros

• Can view a person’s profile before agreeing to meet if you’re a Facebook member
• Browse offers to find a vehicle that suits your budget

Cons

• Seller not vetted by a third party
• In private party deals, you must arrange financing on your own or pay cash
• No third-party guarantee for the purchase

CarGurus

CarGurus bills itself as the largest car-shopping website in the U.S. The site had the best search interface of any website we tested. It ranks vehicles by a proprietary deal score, and it automatically lists its picks for the best deals first. When browsing, you can limit your search radius to as close as 10 miles to your nearest location or expand it nationwide.

Pros

• CarGurus offers support for the paperwork, including title transfer
• Instant Market Value pricing metric: CarGurus uses comparable sales to estimate a fair value for a vehicle you want to buy or sell
• Able to apply for loan prequalification for select private party sales through CarGuru’s financing partner, AutoPay
• A 30-day or 1,000 mile warranty available for select private party sales

Cons

• Not all vehicles come with a limited warranty
• Must communicate with sellers on your own

AutoTempest

Wading through dozens of peer-to-peer sales websites can get tedious, but AutoTempest makes it easier to spot a deal. AutoTempest aggregates search results from other sites like Craigslist, eBay, CarSoup.com, Autotrader and more. When it’s time to buy, AutoTempest provides quotes for shipping a vehicle across the country or for insuring it.

Pros

• List your car for sale or get instant offers from AutoTempest partner site, Cars.com
• New and used vehicles available
• Read car reviews before purchasing

Cons

• No pricing analysis

Best sites for comparing dealerships

Looking to start your car search online but finish it at a dealership? These sites help you compare the inventory and pricing of dealerships near you.

Cars.com

For more than two decades Cars.com has been matching sellers and buyers to new, used and certified pre-owned cars through its website. The site is more of a matchmaking service, with the sale of vehicles taking place offline.

Pros

• New, used and certified pre-owned cars
• Get offers to sell your current car
• Site includes a “deal ranking” that indicates whether pricing is great, good or fair

Cons

• Not every vehicle has a free vehicle history report
• Doesn’t guarantee vehicles
• You must arrange financing and title transfer on your own
• You can’t buy through the site. Instead, you must communicate with the seller.

CarsDirect

Want to see how dealership pricing and inventory stack up in your area? CarsDirect makes it easy to search for both new and used cars. When you a find a car that piques your interest, you can communicate directly with the dealer. You can also apply for financing directly through the site.

Pros

• Apply for financing through the site
• Get pricing information for new vehicles
• Narrow search by price first

Cons

• Must communicate directly with dealers. Sale completed offline.
• No deal guidance on used-car prices
• Not all vehicles have free vehicle history reports

Tips for online car shopping

The average car loan for a new car was more than $34,303 in the second quarter of 2020, according to Experian. You’ll want to do your research and set your budget before you start salivating over the latest luxury vehicle.

Edmunds recommends that most people spend no more than 15% of their monthly take-home pay on an auto loan. That means if your take-home pay is $4,000 per month, your auto payment should be no more than $600 per month.

Once you’ve set your budget, you can start researching the perfect ride. Keep these tips in mind.

• Compare lender financing instead of relying on the dealer to arrange a loan.
• Read reviews from experts and people who actually drive the car.
• Request a copy of a vehicle history report like CarFax.
• When buying used, get an independent inspection from a mechanic.
• Be prepared to negotiate the price (although some sites won’t budge).

Pros

• Loans as small as $100
• Loan options for poor credit

Cons

• Payday loans come with high fees
• No guarantee you’ll be matched with a lender
• Information sold to lenders

What you need to know about a Zippyloan personal loan

Payday lenders used to be storefront check-cashing outlets that often targeted lower-income borrowers, but payday loans are now available online. Zippyloan is an online marketplace for payday loans and personal loans. Here’s what you need to know.

Not a lender

Zippyloan is not a lender or a bank. Instead of directly issuing loans, Zippyloan is a marketplace that connects people with all credit types, including poor credit, to lenders. If your credit isn’t great, a service like Zippyloan may be able to help you find a loan.

Payday loans

The short-term loans offered by some of the lenders Zippyloan works with — also called payday loans — aren’t an ideal source of funds because they tend to come with high fees.

When you get a payday loan, your repayment is scheduled to coincide with the day your paycheck hits your bank account. But if you don’t have a reliable source of income, this type of high-cost financing can be hard to repay.

A typical payday loan costs an additional $10 to $30 for every $100 you borrow. The loan — along with the fees you paid to borrow the money — needs to be paid back in 14 days or whenever you receive your next paycheck. Say you get a payday loan with a $15 fee for every $100 you borrow. Borrowing $500 would mean you’d pay $560 two weeks later when the loan is due.

Paying a $15 fee for every $100 you borrow on a 14-day loan is equal to a 391% annual percentage rate.

It’s important to consider your alternatives before taking out this type of loan. But when a payday loan is your only option, Zippyloan may be able to help you find the best option for your situation.

No guarantee of a loan match

Even though Zippyloan works to match all borrowers with lenders, it doesn’t guarantee that a lender will issue you a loan. If your income or credit doesn’t meet a lender’s requirements, you may not be eligible to borrow money.

Personal loans for fair credit

If you’re looking for a personal loan, Zippyloan can connect you with lenders offering competitive interest rates on unsecured personal loans for debt consolidation, home improvement or other major expenses. This can be a real benefit if your credit isn’t great or you’re having a hard time finding loans for another reason.

Repayment terms for unsecured personal loans from Zippyloan’s lending network range from six months to six years.

Keep in mind that you may not qualify for the advertised rate — since Zippyloan is a marketplace, it can’t guarantee what interest rates you may be offered. Compared to advertised rates from other lenders, these are reasonable rates. But if you have excellent credit, you may be able to find lower interest rates elsewhere.

Not available nationwide

You won’t be able to get a loan through Zippyloan if you live in New York, Oregon, West Virginia or Washington, D.C.

A closer look at Zippyloan

If you’re in a hurry to take out a loan, here are a few things to understand about loans from Zippyloan’s network of lenders.

• Loans range from $100 to $15,000. Lenders that work with Zippyloan offer loans that range from $100 to $15,000. The exact amount you can borrow will depend on your credit history, income and other factors determined by lenders.
• Watch out for payday loans. If you’re taking out a small loan, the loan balance may be due as soon as your next payday. Be sure you understand the loan agreement before you borrow — and remember that short-term payday loans often carry APRs above 300%.
• Loans generally aren’t secured. Most loans offered by Zippyloan’s network of lenders aren’t secured loans. That means you won’t have to offer up collateral, like your car, to secure the loan.
• Expect fast funding. Once a lender approves your loan, you may receive funds in your bank account as soon as the next business day. Keep in mind that depending on your bank, there may be a wait before you can access your cash.
• Interest rates vary. Zippyloan isn’t a lender, so it can’t guarantee the rates you’ll be offered on loans from its network of lenders.
• There’s no credit minimum. Zippyloan doesn’t guarantee that it will match you with a lender — but borrowers with bad credit may be able to qualify for a loan through one of Zippyloan’s partners.

Who a Zippyloan personal or payday loan is good for

Zippyloan specializes in connecting people with poor credit to fast cash.

A loan through the Zippyloan marketplace could be a solution if you’re facing a personal emergency and you don’t have cash or available credit — but don’t forget that payday loans can trap you financially. But if you don’t have a credit card and you don’t qualify for a payday alternative loan, a payday loan may be your only option.

How to apply for a loan through Zippyloan

Since Zippyloan isn’t a lender, you can’t apply directly through the company. Instead, you’ll need to fill out an information request through Zippyloan’s “Get Started” page online. You’ll be asked to provide your personal information along with employment details, your credit score range and bank account information.

Zippyloan then sends the information to lenders that may offer to lend you money. If you want to apply for a loan, you must also complete a separate loan application from one of the lenders (this can often be done online). Lenders may use verification services to confirm the accuracy of the details you sent.

Not sure if a loan from Zippyloan is right for you? Check out these other lenders.

If you’re looking for a personal loan and don’t have great credit, you still may find a loan that suits you better than a payday loan.

• OneMain Financial: OneMain Financial works with people with fair or poor credit. You may have to secure a loan with collateral like your car, but you may be able to get reasonable repayment terms.
• Avant: Avant offers unsecured loans to borrowers with fair credit or better and doesn’t charge an early-payment penalty.

When your car lease ends, you may think you’re even with the dealer.

But you’ll often find you still owe money because of what’s called a disposition fee. This fee, which typically runs $300 to $400, covers the dealer’s costs of putting the vehicle back onto the market to sell as a used car.

We’ll take a look at how the disposition fee works, what you can do to avoid it and how it fits into the overall cost of an auto lease.

• What is a lease disposition fee?
• Do I have to pay the disposition fee?
• Tips for leasing your next car

What is a lease disposition fee?

A car lease is a financial arrangement that lets you effectively “rent” a car from a dealership or auto manufacturer, usually for a few years. The disposition fee is a fee that may be charged when the lease ends.

So how exactly does the disposition fee factor into a lease? When you think about leasing a car, you’ll probably consider any potential “down payment” fee — called a capitalized cost reduction — that comes at the beginning of lease. And you’ll definitely consider your monthly lease payment. But what about the fees you may pay at the end of your lease?

Unlike other fees, the disposition fee isn’t typically paid before your lease starts or as part of the monthly payments. Instead, this fee, sometimes called a “turn-in fee,” gets charged at the end of the lease. The fee usually runs a few hundred dollars, and it offsets some of the costs associated with putting a used car back on the market, such as vehicle cleaning, inspection fees, storage fees and other administrative costs.

You’re not alone if the disposition fee feels like a “gotcha” fee to you. If you’re focused on upfront fees and monthly payments when you sign your lease contract, you may not realize that you’ll owe some money when your lease ends.

Do I have to pay the disposition fee?

The disposition fee should be noted in your lease contract. When you return your vehicle, the leasing company may deduct the disposition fee from any security deposit you may have paid at the beginning of your lease. If you didn’t pay a security deposit, you’ll have to come up with the cash to pay the fee out of pocket.

But there are ways you may be able to avoid paying this fee.

• You buy the car — In some cases, a leasing company may not charge the disposition fee if you buy the car at the end of the contract. After all, they’ll no longer have to recondition or otherwise ready the car for sale.
• You lease or buy another vehicle — Similarly, a dealer may be more willing to work with you if you plan to lease another vehicle from them or buy a new car from them. Keep that in mind as you decide what to do next.

Tips for leasing your next car

If you want to lease your next vehicle, here are some tips to help you navigate the process.

Understand your contract

A lease contract doesn’t just outline your monthly payments. It should note any fees, too. Some of the fees have confusing names like acquisition fees, money factor and capital cost reductions.

Take time to read and understand your contract before you sign it. If you don’t understand something in the contract, ask the salesperson, but do your own research as well.

Focus on the whole cost of the lease, not just the monthly payment

Leasing will usually give you a lower monthly payment than if you take out an auto loan to buy a similar car, but with a lease you won’t build any equity or ownership. And a low monthly payment may sound like a good idea, but the monthly cost of leasing doesn’t cover everything. Consider both your upfront costs and your lease-end costs when negotiating your lease.

You may be able to negotiate the following parts of your deal:

• Capitalized cost: This is the cost of your car, sometimes also known as the cap cost, and you’ll want it to be as low as possible.
• Rent charge/money factor: This translates to your interest rate, so you’ll want to know your credit scores and current interest rates to figure out if you’re getting a reasonable deal based on your situation.
• Mileage allowance: Most lease contracts include limits on the number of miles you can drive, often 12,000 to 15,000 miles. You’ll usually have to pay a small fee for every extra mile you drive. But these fees can add up for road warriors, so it may be wise to negotiate this on the front end if you think you’ll go over your mileage limit.

Keep the car in good repair

You may be assessed a fee if the car has excessive wear and tear when you turn it in at lease-end. To avoid this charge, change your oil on time and keep up with the required maintenance schedule. You may also want to have your car detailed before you turn it in.

Examples of excessive wear and tear include a dented car body, broken glass or missing car parts.

Bottom line

If you’re nearing the end of your lease, review your lease agreement to see if you’ll be on the hook for a disposition fee. If you are, talk to your dealer about any options for a fee waiver and see if any of them make sense for you.

When it comes to leasing a car, the vehicle’s residual value is key. But what is residual value — and why is it important?

The residual value is set at the start of your lease by the leasing company, which may be the car dealership or another financer. It’s the anticipated value of the car at the end of the lease and is used to determine your monthly lease payments. If you decide to buy your leased car, the price is the residual value plus any fees.

Keep reading to find out how lease issuers decide a car’s residual value, and what you should understand about it when considering any lease deal.

• What is residual value of a car?
• Can I negotiate my car’s residual value?
• Should I buy my leased car for the residual value?
• How residual value affects different kinds of leases

What is residual value of a car?

Leasing a car is kind of like renting a vehicle for a set amount of time. The difference with a lease is that the lion’s share of your monthly payment is for the cost of vehicle depreciation.

Your car’s value at the end of the lease is what’s referred to as its residual value. It’s essentially the value of the vehicle after depreciation.

How is residual value in a car lease determined?

The leasing company determines your car’s residual value by considering multiple factors and market conditions, including the car’s perceived reliability, safety and resale value. New technological advances, gas price fluctuations and general economic conditions can all affect your car’s residual value, too.

The residual value can be expressed as a percentage of the price. For example, if it’s estimated at 60% of the initial price of the vehicle, the residual value of a $50,000 vehicle would be $30,000.

Can I negotiate my car’s residual value?

By law, if lease buyout is an option the leasing company must disclose the residual value of the vehicle when you lease your car. In fact, every lease where buyout is available will specifically include the residual value of the vehicle. But you typically can’t negotiate it like you can with other lease terms (although you can try).

Still, residual value is something you should think about when you’re considering whether the terms of a car lease make sense to you and something you can ask about as you shop around.

A higher residual value means the car is expected to hold its value well (depreciate less) over the lease term. Remember, most of your lease payment covers the cost of depreciation. So less depreciation (or higher residual value) can mean lower monthly payments over the lease term.

So is the rule that the higher the residual value, the better? Not always. If the residual value is set higher than what the car will really be worth at the end of the lease term, and you plan on buying the car at the end of your lease, you could wind up overpaying for the vehicle if you do buy it.

Should I buy my leased car for the residual value?

It’s typical for a lease agreement to have an option to buy the vehicle for its residual value when the lease ends. If your car is actually worth more than its estimated residual value, that would make it a great deal.

Say your car’s residual value is $10,000, but its value at lease end is $15,000. You may consider taking a chance by buying the car at lease end and then trying to sell it for that higher price tag to pocket the difference. Or you can just keep driving your purchased car, knowing you’ve gotten more than your money’s worth.

How residual value affects different kinds of leases

How residual value works at the end of your lease can depend on the kind of lease you have. In certain cases, you could end up owing money when your lease is up and you turn the car in.

• Closed-end leases — With a closed-end lease, if the car ends up being worth less than the residual value when the lease is up, you can still turn the car in and walk away with no obligation other than to pay what you’ve promised to pay for things like mileage overages.
• Open-ended leases — At the end of an open-ended lease, if the car is worth less than its residual value, don’t expect to just hand over the keys and walk away. You may have to pay the difference between the residual value of the car and the fair market value of the car.

In both cases, if you have the option in your lease you can also choose to buy the car. Whether it’s wise to pay more for a car than it’s worth at the end of a lease is another question, of course.

Bottom line

When considering a car lease, it’s important to understand your vehicle’s projected value at the end of the lease along with all the other lease terms. While residual value isn’t the only factor influencing the cost of your lease, it’s one of the big ones — and with an open-ended lease, the stakes may be higher.

Be sure that you understand the residual value and other costs associated with the lease before signing your lease contract. And consider residual value when you’re shopping around for the best lease terms for you.

When you lease a car, you’re paying to drive a new vehicle — not to own it.

A car lease is a popular type of auto financing that allows you to “rent” a car from a dealership for a certain length of time and amount of miles. You’ll typically make monthly lease payments on a vehicle, and in exchange the dealer allows you to drive it. At the end of the lease, you’ll either return the vehicle to the dealership or buy out your lease if you want to keep the car, if that’s an option in your lease.

You’ll typically need good credit to lease a new car. People leasing a new vehicle in the first quarter of 2023 had an average credit score of 736, according to Experian data. FICO considers scores of 670 and above to be “good.” Keep in mind that even though you don’t own the car you’re leasing, your lease-payment history will show up on your credit reports.

• How is a car lease different from a car loan?
• What terms do I need to know before leasing a car?
• What happens at the end of my car lease?
• Is leasing right for me?

How is a car lease different from a car loan?

In many ways, a car lease is similar to an auto loan. For example, as the person leasing a vehicle — also known as the lessee — you may have to put cash down for the car, and you’ll make monthly payments just as you would with a typical car loan.

Leases often have lower monthly payments than a car loan — but those lower payments have a downside. Instead of building equity in the car, you’re only paying for the privilege of driving it for a set amount of time and miles.

While you can often apply for car-loan financing through a bank or other third-party lender in addition to a car dealership, it’s uncommon to arrange a car lease through a bank. Instead, you’ll most likely work directly with a dealership or a specialized vehicle-finance company.

At the end of the lease term — typically two to four years — you’ll return the car to the dealership and walk away from the car and monthly payments for good, unless your lease allows you to purchase the vehicle.

Can I lease a used car?

It’s possible to lease a used car. Edmunds recommends working with a franchised dealership to arrange financing on a certified pre-owned car. Examples of franchised dealerships could be BMW or Toyota.

“Lease-here, pay-here” dealerships tend to lease used vehicles to people with bad credit — but these leases are often filled with “gotchas.” It’s generally best to avoid leasing from these types of dealers.

What terms do I need to know before leasing a car?

If you haven’t leased before, a car-lease agreement can be full of unfamiliar language. Before taking out a lease, here are some terms to know.

Open-end vs. closed-end leases

If you’re considering leasing, you’ll want to verify if your terms are for a closed-end or open-end lease. With a closed-end lease, you typically don’t pay any more after you return your vehicle — unless it has excessive wear and tear or you went above any mileage limits.

A closed-end lease means you’ve already agreed on how much the car’s value will decrease during your lease term. If the car is worth less than your agreed-upon amount when you return it, you have no additional financial obligation.

With an open-end lease, the future value of the car isn’t in the contract. At the end of an open-end lease, you may get a refund if the vehicle is worth more than expected. But if the car is worth less than expected, you may have to pony up more cash.

Capitalized cost

Your lease contract can include a number called the gross capitalized cost, which is comparable to the agreed value of the car and services at the start of the lease. The gross capitalized cost includes the value of the car plus the value of any other services and fees defined in the lease.

A related term is capitalized cost reduction. It’s possible to reduce your gross capitalized cost — and monthly payment — by applying a capitalized cost reduction. Capitalized cost reductions are subtracted from the gross capitalized cost to calculate the beginning lease balance — they kind of function like down payments on a lease. If you trade in a vehicle or put cash down, your gross capitalized cost will be reduced by the amount of the capitalized cost reduction.

Residual value

Residual value is the value of the car at the end of a lease agreement. A car that holds its value well has a high residual value. You and the lessor will typically agree to a residual value at the start of a lease agreement, and the car’s residual value will be in the contract.

Depreciation

Depreciation is the rate at which your vehicle loses value over time. If you’re leasing, you’ll pay for the depreciation on the vehicle through your monthly lease payments.

Rent charge

The rent charge — also known as the money factor — is the largest cost of leasing a vehicle and is similar to interest. You can figure out your equivalent annual percentage rate, or APR, by multiplying the money factor by 2,400.

Use tax

There may be a use tax when you take out a lease. In most states, the use tax usually replaces the sales tax that most people pay when buying a vehicle.

Guaranteed Auto Protection (gap) coverage

The lessor may require you to purchase gap insurance, which covers the difference between the amount you owe on your lease and the actual value of the leased vehicle if it is damaged or stolen.

Early termination charges

When you take out a lease, you’re agreeing to pay for the lease for a certain period of time. If you end the lease early, you may have to pay an early termination fee. Your lease agreement should explain what amount you’ll owe if you choose to end the lease before the term is up.

What happens at the end of my car lease?

When a lease is up, you have two options.

1. Buy the car. Most of the time, leases give you the option to buy the car at the end of the lease. If you don’t have the cash to pay for the car, you may be able to apply for a lease buyout loan to buy it.
2. Settle the account and walk away. The end of a car lease may be as simple as returning the car to a dealership and walking away. But in some cases you may have to pay if you drove more than a certain mileage limit, which is usually between 10,000 and 15,000 miles a year. The exact fees for excess mileage will be defined in the lease contract. You may also have to pay for excessive wear and tear if you turn in the vehicle in poor condition.

Is leasing right for me?

Even though monthly lease payments are usually lower than car-loan payments, leasing may be more expensive than an auto loan in the long run.

When you take out a car loan, you’ll pay off the car over time. Driving a vehicle you own can reduce your long-term costs since you’ll no longer have a monthly payment once your car loan is paid off. But if you lease a car, you won’t be building equity in a vehicle.

Depending on your desires and lifestyle, it can still make sense to lease instead of buy. Here are a few times to consider leasing.

• You want to drive new cars. If you exclusively lease new vehicles, you’ll enjoy the benefits of a new car without the hassle of selling a used vehicle each time you trade up.
• You don’t want to own a car. If you view car ownership as a hassle, a lease may be a good choice for you. Lease agreements may include service contracts that can make dealing with maintenance and repairs more convenient.
• You need a car for a short time. Perhaps you’re living somewhere short term and need a car. In that case, taking out a two-year lease may make more sense than buying and selling a car.

Bottom line

As you search for your next car, consider if a lease makes sense for you. Just remember that at the end of a lease, you won’t automatically own the car. Consider your lifestyle, whether you want to own a car and your budget before deciding whether to lease or buy a new car.

Lease vs. buy calculator for cars

Use our lease vs. buy calculator for cars to get a better idea of how much money leasing a car versus buying one could save you — or cost you.

Should I lend money to a family member? It’s a much-debated question.

In fact, the best place to get a loan may be from your family. Loans from family members can be a great deal, particularly for the borrower — but you may have heard the common warning: Never lend money to a family member.

These loans have potential for both financial and personal downsides, as well as possible tax consequences. Here are a few things to know before making a family loan.

• What is a family loan?
• When should I consider a family loan?
• Tips to make a family loan legitimate for tax purposes
• Alternatives to family loans

What is a family loan?

A family loan, sometimes called an intra-family loan, is a loan between family members. Family loans are often less formal than personal loans from traditional lenders or in the peer-to-peer (P2P) marketplace, which connects potential investors directly to borrowers.

By contrast, family loans may have no contracts or simple contracts where the borrower or lender tracks the interest due and repayment schedules.

Informal family loans may make sense for family dynamics, but a loan is still a contract, and loans have potential tax consequences for both the borrower and the lender: A lender who charges interest will have to pay taxes on any interest earned from the borrower.

If the lender doesn’t charge interest, things become more complicated. The IRS actually requires the lender to pay taxes on “imputed interest charges.” Imputed interest is the estimated amount of interest that the IRS thinks the lender should have charged.

If keeping track of interest, payments and tax implications sounds like a headache, you may be able to pay a peer-to-peer loan administrator to take care of documentation and collect payments for you.

Pros of family loans

• Rough credit is not an issue: There’s nothing to stop family members from lending to one another, even if the borrower’s credit history is a little banged up.
• Low interest rates: In some cases, family members lend to other family members at a lower interest rate than a bank would lend to them.
• Mutual benefits: The borrower may get a loan with better-than-average loan terms, and any interest is paid to a family member instead of a faceless lender.

Cons of family loans

• Paperwork: When you give a family loan, you may want to create a written contract that includes a promise to repay the loan. This type of contract is called a promissory note. You may also want to track interest owed, payments and more.
• Tax consequences: When dealing with a family loan, the borrower and lender have to follow tax rules. Lenders may have to pay interest on income earned from the loan, as well as income not earned if they offer a below-market rate. Unless an exception applies, borrowers may have to repay the debt as agreed or claim the canceled debt as income.
• Family dynamics: Will it ruin Thanksgiving dinner if your brother still owes you the $10,000 he should have repaid by summer? Broken loan agreements can cause family tension.
• Credit history: Unless they’re reporting your loan payments to the three main credit bureaus, you probably won’t improve your credit history with a loan from a family member.

When should I consider a family loan?

Loans between family members can be risky. Before any money changes hands, think about putting these conditions in place.

• Loan terms: The borrower and lender ideally should agree on a repayment schedule and an interest rate before making a loan. Loan terms should be put into a signed contract.
• Legal remedies: If the borrower defaults on the loan, the lender has to decide whether to sue a family member or to absorb the financial loss. If you can’t afford to lose the money, it may not make sense to lend it.
• Restrictions on use: For example, down payment funds from unsecured loans —including family loans — in some cases aren’t considered valid sources of funding for a mortgage down payment. So if a mortgage down payment is the reason for a family loan, you’ll want to think (and check the details) twice.

Tips to make a family loan legitimate for tax purposes

Although a handshake between family members is an enforceable loan contract, the IRS assumes money transfers between family members are gifts — unless there’s proof that the lender expected to enforce the repayment terms.

Take these steps to help ensure your loan is the real deal in the eyes of the law.

Agree to a repayment schedule

Rules surrounding loans between family members can become complicated if the loan agreement doesn’t include terms of repayment. A best practice for loans between family members is to set a repayment schedule. The borrower could make a payment every month or repay the loan in a few years.

Charge interest

The IRS sets a minimum interest rate called the applicable federal rate.

The applicable federal rate is the minimum interest rate that a lender can charge a borrower for loans over $10,000. If the lender charges less than the applicable federal rate (for a loan over $10,000), the lender will have to pay taxes on forgone interest.

Forgone interest is the interest that a lender would have earned by charging the applicable federal rate, minus any interest actually payable on the loan for the period.

The minimum interest rate varies based on whether a loan is a short term (three years or less), midterm (over three years but not over nine years) or long term (over nine years) loan.

As of January 2021, the annual applicable federal rate for a short-term loan was 0.14%. A lender who doesn’t charge at least the applicable federal rate may have to pay taxes on the unearned interest.

Put it in writing

While a handshake technically is an enforceable loan contract, putting the repayment terms in writing gives you something concrete showing there’s an expectation that the lender will enforce the debt repayment terms.

Keep records

The paperwork doesn’t stop after the loan is issued. The borrower and the lender should record payments and keep track of the balance of the loan. Good recordkeeping will help with taxes and will help keep family members on the same page.

Tax rules around gifts and loans can be complicated. If you’re unsure of the tax implications of making a family loan, it may be worthwhile to consult a tax professional.

Alternatives to family loans

When money and family mix, relationship dynamics can get messy. Here are a few alternatives to consider if you don’t think a family loan is right for you.

Give a gift

If you’ve got the financial means, you may want to consider giving money to family members with no strings attached. For 2019, family members can give up to $15,000 per individual giftee without triggering gift tax laws.

Use a personal loan

If a family member can’t afford to lend to you, you may have better luck finding a personal loan. In some cases, a family member may be willing to co-sign the loan. When a family member co-signs the loan, that person agrees to become responsible for the payments if the borrower defaults.

Remember, both the borrower’s and the co-signer’s credit is on the line if the borrower is late making payments.

Consider a business loan

If you’re trying to start a new business or grow a side business into a full-time occupation, a business loan may make more sense than borrowing from friends or family.

Entrepreneurs can consider a variety of loan options when starting a business. Some popular funding choices for small-business owners include business credit cards, microloans (loans typically under $50,000) backed by the Small Business Administration, an SBA-guaranteed loan from a bank or community development organization, or a traditional business loan from a bank or peer-to-peer lender. 

Make a family member an authorized user

Not willing to co-sign a loan or lend a family member money? You may still be able to help them boost their credit scores by making them an authorized user on your credit card.

When a credit card holder adds someone as an authorized user, the bank may report the primary credit card holder’s information on the authorized user’s credit reports. If the primary cardholder has a great credit history, the new authorized user could see a boost to their credit scores. Better credit scores could help the authorized user become eligible for a loan from a lender. 

Bottom line

A family loan ideally creates a win-win situation for the borrower and the lender. But if the family loan goes sideways, it may hurt your relationships, if not your credit scores.

Before borrowing from or lending to family members, think through all of the possible consequences. If the loan still makes sense for both parties, be sure everyone is on the same page by putting the loan in writing and carefully tracking the repayments.