It's a new car owner's worst nightmare. The beautiful new car you proudly drove off the lot turns out to have unfixable problems. If this sounds familiar, you're not alone. An estimated 150,000 cars each year (or 1% of new cars) are lemons. Every state has enacted some type of "lemon law" to help consumers who get stuck with lemons.

In order to take advantage of these laws, you need to know what qualifies as a lemon and how to get a refund or replacement car.

What Qualifies as a "Lemon"?

In order to qualify as a lemon under most state laws, the car must (1) have a substantial defect covered by the warranty that occurred within a certain period of time or number of miles after you bought the car, and (2) not be fixed after a reasonable number of repair attempts. In most states, the lemon law only applies to new cars (but see below).

Substantial Defect

A "substantial defect" is a problem covered by the warranty that impairs the car's use, value, or safety, such as faulty brakes or steering. Minor defects such as loose radio knobs and door handles do not meet the legal definition of "substantial defect."

As with most legal definitions, the line between a "minor" and a "substantial" defect is not always clear. Some not-so-obvious conditions, such as defective paint jobs or horrible smells, have been found to be substantial defects.

In all states, the substantial defect must occur within a certain period of time (usually one or two years) or within a certain number of miles (usually 12,000 or 24,000). The defect must not be caused by abuse.

Reasonable Repair Attempts

You must allow the dealer or manufacturer to make a "reasonable" number of attempts to fix a substantial problem before your car is considered to be a lemon. Usually, you must meet one of the following standards to be protected under your state's lemon law:

• If the defect is a serious safety defect (for example, involving brakes or steering), it must remain unfixed after one repair attempt.
• If the defect is not a serious safety defect, it must remain unfixed after three or four repair attempts (the number varies by state).
• If the vehicle is in the shop a certain number of days (usually 30 days in a one-year period) to fix one or more substantial warranty defects, it may fit the definition of a lemon.

Lemon Laws for Used Cars

Although most state lemon laws apply to new car sales only, a few states have lemon laws that also cover used cars. You should check the definition of a "new car" in your state lemon law. (To find your state's lemon law, visit www.autopedia.com or www.lemonlawamerica.com .) Some laws, for example, will cover a car that was bought with a significant amount of mileage on the odometer. In others, the lemon law applies to used cars that were still covered by the original warranty at the time of purchase.

Getting a Refund or Replacement Car

If your car meets the lemon law requirements for your state, you have the right to obtain a refund or replacement car from the manufacturer. Although the process for getting this relief is different in each state, in all states you must first notify the manufacturer of the defect. If you're not offered a satisfactory settlement, most states require you to go to arbitration before going to court.

Preparing for a Lemon Law Arbitration

Manufacturers use a number of different arbitration programs. In many cases, the manufacturer will select the program for you. If you are given the opportunity to choose, you'll probably do better if you choose a state consumer protection agency program, rather than a manufacturer's in-house program or a private arbitration program.

Consumers who bring substantial documentation and evidence to the arbitration hearing tend to do better than those with little evidence to support their claims. The types of documentation that can help include:

• brochures and ads about the vehicle (an arbitration panel is likely to make the manufacturer live up to its claims)
• vehicle service records showing how often you took the car into the shop, and
• any other documents showing your attempts to get the dealer to repair your car, including old calendars and phone records.

The arbitrator will hear both sides of the dispute and make a decision, usually within 60 days after the hearing. If the arbitrator decides that your car is a lemon, you will be entitled to a refund or replacement.

It is important to take the arbitration seriously and be as prepared as possible. Although usually you can appeal a bad arbitration decision in court, the decision can greatly influence your case.

This whole process can take a long time. Most lemon laws allow you to keep using your car while pursuing a claim. But be careful: Never use your car if doing so poses a safety risk. Even if you can drive your car safely, some courts may view your case less favorably if they know that you were able to keep driving your car.