Automobiles and Other Major Purchases

Guidelines for Wise Buying 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 life cycle planning for major purchases

Key Advice for vehicles Pre-shopping is essential! Match purchase decisions to vehicle usage

patterns Leasing better if you want a new vehicle every 1-

3 years – buying is better financially overall. Haggle over the price Buy recent-year high quality used Check repair ratings

Steps taken before the sale Prioritize your wants

Needs is something thought to be a necessity Wants is unnecessary but desired. Prioritizing wants

Do necessary pre-shopping Research Read about the product in Consumer

Reports Review other publications on the product Investigate with the Consumer Information

Center

Price MSRP – Manufacturer’s Suggested Retail Price

(the initial asking price) On new cars the MSRP is known as the sticker

price. Dealer sticker price (tacked on charges) Invoice or seller’s cost which is the price the

dealer paid for the vehicle. Manufacturer’s sometimes offer dealer holdback –

so the sticker price isn’t true.

Trade-In You may be able to trade in an old-model

when buying a new one. Generally people receive a better price by

selling a vehicle on their own rather trading it in.

Cost of Financing Important to gather information on the

current APR Choosing between debate and low-cost

financing (decision making worksheet helps you do the math)

Rebates are really additional borrowing beyond the true price.

Fit the Expenditure into Your Budget Unaffordable cash purchase may wreck a

budget for a month or two – but an ill-advised credit purchase may have negative effects for years.

Consider cost per use of product.

Get Help When Buying a New Vehicle New Vehicle Buying Service Search the Internet for help Ask about insurance rates Consult your mechanic

Keys to Buying a Safe Car Government safety tests Check on recalls Look for a model with standard air bags Look for a model with anti-lock brakes Consider side-impact protection Think about theft as well as accidents

Comparison Shopping Look for the best buy – not just the

cheapest price. Rule of three Use your knowledge from this class (and

138) to develop a chart of desirable or undesirable features.

Compare financing options

Compare Warranties Implied warranty the product sold is

suitable for sale. To avoid implied warranties – seller can

sell something “as is”. Express warranties – written warranties.

Full Warranty Product must be fixed at no cost the buyer

within a reasonable time after the owner has complained.

The owner will not have to undertake an unreasonable task to return the product

If it cannot be fixed it must be replaced within a reasonable amount of time.

Limited Warranty May offer free parts but not free labor (or

visa versa) One part may be under full warranty and

other parts under limited warranty.

Service Contracts Agreement to provide free (or nearly free)

repair to certain components of the product for a certain amount of time.

The cost is paid by the buyer either in one lump sum or over a period of time.

More than 80% of all service contracts are never used, total payments are usually less then 10% of the money spent on contracts.

Getting things fixed Get an estimate in advance Ask how long the repairs will take Get a claim check !!!!!! Ask to be given all replaced parts Stay home when in-home repairs are

made Get a written receipt.

Leasing vs. Buying Leasing is essentially renting the product. Five terms are important Gross capitalized cost (price of the vehicle

plus what the dealer paid to finance plus other items like insurance or maintenance.)

Five items cont. Capitalized cost reductions (moneys paid

on the lease at its inception including down payment, trade-in, rebate)

Subtract the capitalized cost reductions from the gross capitalized cost you get the adjusted capitalized cost.

Money factor measures the rent charge portion. (May not include all costs – be leery)

Five Items cont. Residual value is the projected value of a

leased asset at the end of the lease time period.

How leases work First month’s lease and a security deposit. Using the cost of the using the asset over

the lease period divided by the number of months used is the monthly payment.

For example $40,000 Suburban for 3 years. When you return it, the Suburban will still be worth $28,000 so your monthly payments are on $12,000 not $40,000.

Open-ended Lease Difference between the projected residual

and the actual market value a the end of the lease period. If it depreciates faster than expected their may be a charge at the end.

Law maximizing the fee to three times the monthly payment.

Close-ended lease Walkaway leases – no extra fee for market

depreciation HOWEVER if it has greater than normal wear or mileage there may be an extra fee.

Open and Close Ended You may purchase the vehicle at the end

of the lease period Open-ended pay actual cash value Close-ended pay residual value

Other fees Acquisition feed – pays for credit report,

application fee, etc. Disposition fee – lessor must prepare it for

resale. Early termination fee – decide to end the

lease prematurely. Early termination payoff – early fee plus

unpaid balance.

Deal Negotiations Approach any deal as if you could simply

walk away from it. Remember the concept of redress