Buying a car

1. Buying a car Vocabulary Quiz Friday

2. Vocabulary The annual percentage rate for a loan. Also known as the interest rate. Automotive Service Excellence (ASE) is an impartial, third-party endorsement of a mechanic’s knowledge and experience. The practice of advertising a car at an unrealistically low price, then switching a customer to a different vehicle at a higher price. APR ASE Certified Mechanic: Bait and Switch

3. Vocabulary The cost of the car without options, but includes standard equipment and factory warranty. A plan for spending and saving money during a particular period. A car that has passed through the dealer's mechanical and physical inspection. Base Price Budget Certified Used Car

4. Vocabulary "Covers the cost to repair YOUR car if YOU are at fault in an accident or if damage occurs to your car as a result of a natural disaster,vandalism, theft, or fire." Amount of money you will have to pay back in addition to the money you borrowed. An insurance policy that will pay your loan obligation if you die or are disabled Collision & Comprehensive Insurance Cost of the loan Credit Life Insurance

5. Time to Pick a Car and Get on the Road • Closest to the MSRP (Manufacturer’s Suggested Retail Price) Without going over – wins!

6. 2005 Honda Civic LX • Automatic Transmission • Dual Zone Air Conditioner • Keyless Entry • Auto Lock Brakes

7. 2005 Honda Civic LX • $16,975

8. 2005 Mitsubishi Spyder GT • Automatic, 4-Spd w/Overdrive & Sportronic • V6, 3.0 Liter • Leather Interior

9. 2005 Mitsubishi Spyder GT $28,944

10. 2005 Hummer H2 SUV • 7-Spoke Aluminum • Automatic, 4-Spd HD • Leather Surfaced Heated Bucket Seats • V8, 6.0 Liter Engine

11. 2005 Hummer H2 SUV $53,280

12. 20-10 Rule • monthly payments shouldn’t exceed 10% of your monthly net income • If your take-home pay is $400 a month $400 x 10% = $40 • Your total monthly debt payments shouldn’t total more than $40 per month. • Note: Housing payments (i.e., mortgage payments) should not be counted as part of the 10%, but other debt should be included, such as car loans, student loans and credit cards. never borrow more than 20% of your yearly net income If you earn $400 a month after taxes, then your net income in one year is:12 x $400 = $4,800 Calculate 20% of your annual net income to find your safe debt load:$4,800 x 20% = $960 So, you should never have more than $960 of debt outstanding.

13. Consumer Decision Making • Do I really need this item?’ • Is it worth the time I spend making the money to buy it? • Is there a better use for my money right now? Deciding to spend your money

14. Consumer Decision Making • What level of quality do I want (low, medium, or high)? • What level of quality do I need? • What types of services and repairs does the dealer offer? • Should I wait until there is a sale on the type of car I want? • Should I buy a new or a used car? • If I buy a used car, should I buy it from a dealer or from a private party? Deciding on the right purchase

15. Consumer Decision Making • Decide how much you can afford to spend. • Decide which car models and options interest you. • Research the reliability of the model of car you want. • Find out where the nearest repair facility is that works on the type of car you want. Before you begin shopping:

16. Shopping for a used car • provide quality used vehicles; service department available; higher prices than other sources • specialize in previously owned vehicles; limited warranty (if any); vehicles may be in poor condition • may be a good buy if vehicle was well maintained; few consumer protection regulations apply to private party sales New Car Dealers Used Car Dealers Private Parties

17. Shopping for a NEW car • Decide which car model and specific options you want. • Find out the invoice price and the true cost to the dealer of the model and options you want. • Decide how much you are willing to pay the dealer above the invoice price. • Make your offer to as many dealers as possible. • Compare final sales prices with other dealers and buying services. Before you shop

18. Shopping for a NEW car • Compare financing costs from various sources. • If you already have a car, find out its value independent of the dealer’s trade-in offer. • Try to sell your old car yourself (dealers usually give better deals without a trade-in). • Decide whether you need an optional service contract or credit insurance. Before you Shop

19. What is a deductible? • This is the amount per accident that you pay out of pocket before insurance starts to pay • Common deductible amounts are usually $250, $500, and $1000 • The higher the deductible amount you pay the lower your premiums are Deductible

20. Vehicle Expenses • Cost of the Vehicle • Sales Tax • Routine Maintenance • Insurance • License & Registration • Unexpected Repairs • Gas • Depreciation All of these add up quickly!

21. New vs. Used • How much is a new car worth 5 years from now? • Most Cars: 22 -25% of the original value • Honda Accord or Toyota Camry: 60% of original value • Source: Kelly Blue Book

22. A Big and Important Purchase • New Vehicle is the 2nd most expensive purchase in life. • 1st is a home • A car is a long-term commitment • Average price: • New vehicle: $25,206. • Used vehicle: $15,568 • Know the Basics • VIN, Manufacturer, Make, Model, Year, and Type

23. Vehicle Identification Number • VIN is a 17-character number • Where is it? • Left side of the dash • Inside of driver’s doorjamb • Vehicle’s title card • Information specific to the vehicle

24. Manufacturer & Make • Manufacturer:: The company that builds the car. The manufacturer builds makes of cars. • Ford manufacturers Mercury and Lincoln cars. • General Motors manufacturers Pontiac, Buick, Cadillac, Oldsmobile, Hummer, Saturn, and Chevrolet cars. • Honda manufactures Acura cars.

25. Model • Specific type of make • Taurus (Ford) • Accord (Honda) • Altima (Nissan) • Corrola (Toyota) • The model year • Not necessarily the year it was built

26. Type • Pickups • Sport Utility Vehicles • Sport Utility Trucks • Compact Cars • Mid-size Cars • Full-size Cars • Mini-vans • Full-size Vans • Sports Cars

27. Car Buying: 4-Step Process • Research • Check out the cars • Set a target price • Shop for financing

28. More Vocab • Manufacturer’s original price but not the dealer’s cost. Invoice Price

29. All of the Finance “Extras” • Be prepared to hear about the extras: • Credit Insurance • GAP Coverage • Extended Warranty • Extended Service Contract • Exterior & Interior Finish Protection • Undercoating or Rustproofing • VIN Etching • Dealer Prep Fees

30. Number of Years to Finance? • Recommend 31/2 - 4 years. • Average loan is 5 years • Interest rate increases after 5 years because risk is greater • More years will increase the cost of the loan and the amount of interest you pay. • Upside down-when you owe more on the car than it is worth. Usually happens with longer loans.

31. GAP Coverage • New cars quickly depreciate within the first 1-2 years of ownership. • You can owe more on your car than it is worth (upside down) as soon as you drive off the lot. • If your car is totaled or stolen, your collision/comprehensive insurance will only cover the market value of the car. • Gap insurance covers the “gap” between the loan value and the market value.

32. Extended Warranty • Takes effect after the factory warranty expires. • You don’t have to buy an extended warranty on the same day you buy a new car. • No if vehicle has above-average reliability rating. • Yes if car has below-average reliability rating, and you plan on keeping it well past the factory warranty period. Used cars beyond warranty.

33. Extended Service Contract • May duplicate warranty. • Doesn’t cover common repairs like brakes or clutches. • Requires routine maintenance. • Look out for exclusions that deny coverage.

34. The Benefits of Financing • You establish credit • Once 18, take out at least a 2-year loan and make on-time, in-full payments. • Before the age of 18, you will have to finance the vehicle in another person’s name.

35. Pros & Cons of Leasing • Pros • Lower Payments usually lower • Pay for depreciation + rental fee • Option to Buy • Cons • You are renting-not buying-and you have to return the car • Annual mileage limits • Usually 12,000 – 15,000 • Must pay 10 to 25 cents for each additional mile above the annual agreement • Must return all items in car