Major Expenditures Cars & Other Big Purchases

1. Major Expenditures Cars & Other Big Purchases Developed by Joseph E. Botta Virginia Cooperative Extension Prince William County

2. Overview • Being a savvy consumer • Automobiles: buy or lease? • Final do’s and don’ts when making auto purchases • Furniture and appliances: buy or rent to own? • Questions to ask • Summary

3. Being a Savvy Consumer • Guidelines to save money • Before you see a salesperson • Comparison shop • Negotiating & decision making • After the purchase - compliment or complain

4. Guidelines to Save Money • Control buying on impulse • Pay cash • Buy at the right time • Don’t pay extra for a “Name” • Recognize the high price of convenience shopping • Use lifecycle planning for major purchases $

5. Before You See a Salesperson • Distinguish between wants and needs • Do the necessary pre-shopping research • Fit the purchase in your budget

6. Comparison Shop • Use the “Rule of Three” • Best Buy - acceptable quality for a fair or low price for that quality • Warranties • Service Contracts • Buyer Protection Plans

7. Negotiating & Decision Making • Negotiating • Have accurate information • Be prepared to walk out • Decision Making • Make your final decision at home, not at the place of purchase • Beware of “lowballing”

8. After the Purchase - Compliment or Complain • Compliments • Tell sellers which practices meet customer needs • May get you better service in the future • Complaints • What is the purpose? • Better Service • Right a Wrong • Complaint Procedure

9. “Righting a Wrong” VA Office of Consumer Affairs (800) 552-9963 (804) 786-2042

10. Automobiles Buy or Lease?

11. Three Separate Issues • Buy or Lease • Trade In • Loan

12. The Lease or Buy Game Questions 1. 2. I typically get a new car every 3 or 4 years. I am unable to come up with a down payment of at least 20%, or I prefer to put as little of my own money into a car as possible. I treat my vehicle gently and maintain it faithfully. It rarely gets dents and scratches; small children & pets are infrequent passengers. I drive less than 15,000 miles per year; I foresee no change in the next few years that would significantly alter the amount of driving I do. 3. 4.

13. The Lease or Buy Game Start here 1 No Yes 2 2 No Yes No Yes 3 3 3 Yes No No Yes No Yes 4 4 4 4 No No Yes No Yes Yes Yes No It’s your call Buy Lease

14. What You Need to Compare Open-end lease Closed-end lease

15. Comparing • 1. Ownership • Leasing: You do not own the vehicle. • Buying: You own the vehicle. • 2. Up-front costs (in addition totaxes, registration and other fees, and other charges. • Leasing: May include the 1st month's payment, a refundable security deposit, a “capitalized cost reduction” • Buying: Include the cash price or a down payment • 3. Monthly payments • Leasing: Usually lower • Buying: Usually higher

16. Comparing • 4. Early termination • Leasing: You are responsible for any early termination charges if you end the lease early. • Buying: You are responsible for any pay-off amount if you end the loan early. • 5. Vehicle return • Leasing: You may return the vehicle & “walk away.” • Buying: You keep it, it’s yours • 6. Future value • Leasing: Lessor risk • Buying: Buyer risk

17. Comparing • 7. Mileage • Leasing: Usually limited, penalty if exceeded • Buying: Unlimited • 8. Excess wear • Leasing: Usually limited, penalty if exceeded • Buying: Unlimited • 9. End of term • Leasing: Turn vehicle in (or buy it if you have this option, or lease another) • Buying: Keep vehicle (or buy or lease a new one)

18. Leasing - Sample Comparison

19. At Lease End • Have vehicle preinspected • Dealer prepares written estimate of repairs • You take vehicle to independent repair shop • If you decide to buy the vehicle • negotiate the purchase option price quoted in the lease • Don’t get “rolled” • Dealer rolls repair bill into new lease

20. Leasing - Some Final Thoughts • Keep an open mind • Make sensible comparisons • Don’t let bad savings habits force you into leasing

21. How to Buy - $$$ Getting the Most for Your Money • Buy used vehicles • Buy used vehicles from private owners • Visit dealerships at least three times before signing a deal • Negotiate price first • Use your vehicles up

22. Buying Your Car First, decide what you want and need. • Size • Use • Features • Price • Insurance • Repair history

23. Price Terms • Invoice Price • “Option” Invoice Price • Base Price • Manufacturer’s Suggested Retail Price (MSRP) • Dealer Sticker Price

24. Good Things to Know About • Dealer Holdbacks • Incentives • Rebates • Destination Charges • Advertising Charges • “Processing Fee”

25. Gap Insurance Your car is stolen or totaled… • Covers the difference between what auto insurance will cover and the amount remaining on the lease or loan

26. Figuring Your Target Price Invoice MSRP Plus sales tax, licensing, and registration Try to avoid paying “processing fee”

27. Loan Comparison Worksheet Amount of Loan

28. Other “Tidbits” • Test Drives • Drive the car • Evaluate the car • Take the salesman’s card • Leave (do not step into a sales office) • Extended Warranties • Haggle price • Coverage varies • Do you really need it?

29. Three of the Games Dealers Play • “What do I have to do to get you into this car today?” • Take it or leave it • Playing on your emotions

30. Trade-ins • Know your car’s value • Try to sell it yourself • Prepare your car for sale or trade • Wash & wax exterior • Clean interior • Change oil & filter • Get estimates on required repair work

31. And remember... You can always just Walk Out!

32. Don’t shop with your emotions Do your homework Check on financing first Be familiar with sales tactics of car dealers Do read the fine print Don’t lock yourself into one brand Concentrate on total selling price Read & understand all documents before signing Final Do’s and Don’ts

33. Furniture and Appliances Buy or Rent to Own?

34. Installment Sales Contracts How do they work? • You are buying the item • by making a number of monthly payments • The contract spells out • the annual percentage rate (APR) • the finance charge • monthly payment amount • cash sale price • total purchase price (monthly payment times total number of payments)

35. Rent to Own Contracts How do they work? • You lease or rent the item (borrow it) • for a certain time period • and return the item when you are done with it • and stop making payments • You are not obligated to own the item • but you may own it if you choose to make enough payments

36. Questions to Ask Before You Rent - Cost Related • How much are my payments? • When are they due? • How many payments must I make? • How many payments must I make before I own the item? • Is there a penalty if I return the item early? • Are there any extra charges? • What is the total dollar cost to own this item? Answers will be in your contract - read it!

37. Example - Total Dollar Cost Number of payments 12 Amount of payment $30 Handling fee $20 12 times $30 = $360 Plus handling fee: 30 Your total cost: $390 Now - what would be the cost if you were to buy the item at a discount store?

38. Other Questions to Ask • When do I own the item? • Is the item new or used? • Am I responsible for loss or damage to the item? • Is there a grace period for a late payment? • How do I reinstate this contract? Answers will be in your contract - read it!

39. Example:Three Ways to Buy a TV Note: Depending on what you decide, you can pay $67, $89, or $963 over the cash price.

40. Summary • Plan ahead • Distinguish between wants & needs • Comparison shop • Pay cash • Make final decision at home