CHAPTER

Cars and theConsumer

"Everything inlife is somewhereelse, and youget there ina car."

-E.B. White

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Visit the Street Law Website at streetlavv.glencoe.com forchapter-based information andresources.

A automobile might be one of the most important purchases you willever make. Buying, leasing, maintaining, and selling an automo-

bile involve many legal issues. Earlier in this unit, you learned how thelaw affects car owners in cases of repair fraud and repossession. Nowyou will apply some other concepts you have already studied—com-parison shopping, contracts, warranties, and credit—to automobiles.

Buying a CarWhen you shop for a new or used car, you should consider at least

five general characteristics: (1) safety, (2) price, (3) quality, (4) warranty,and (5) fuel economy. Unfortunately, many consumers fail to comparesafety features when shopping for a car. Safety features are important

Consumers should beaware of the legal issuesrelated to buying a car.

Where You LiveAre there laws in yourstate requiring thatused cars be soldwith some warrantyprotection?

Examine both the inside

and outside of a car before

you buy. What information is

available to consumers on the

window sticker of a car for sale?

because, in an average year, one out of ever}' three motorists isinvolved in an automobile accident. Federal law requires car dealersto provide a pamphlet that details safety aspects of all new cars. Thispamphlet includes information on acceleration and passing ability,stopping distance, and tire load. As well as obtaining this information,you should always check visibility from the driver's seat—check forblind spots, windshield glare in strong sunlight, and positioning ofinside and outside mirrors. In addition, you should check whetheryou can reach all controls while sitting in the driver's seat with theseat belts fastened, and consider what proto .ion is afforded bybumpers, safety belts, and air bags. If you have child safety seats, besure they fit the car.

In considering price, remember that virtually no one pays thesticker price for a new or used car. Discounts are common. The sizeof the discount depends on the time of year, your n •^otiating ability,special sales, manufacturer's bonuses, rebates, and other factors.

You should compare fuel economy, warranties, and the dealer'scapability to make repairs the same way you compare safety featuresand price. Many new cars have bumper-to-bumper warranties coveringmost parts—except batteries and tires—against defects for 36,000 milesor 36 months, whichever comes first. Some manufacturers warrant theengine and drivetrain for a longer period. Other manufacturers offer awarranty as part of the purchase price, but also make available an

extended warranty (actually a servicecontract) for an additional cost.Warranties vary, so be certain that youread and fully understand exactly whatprotections the warranty provides.

In some instances, used cars comewith warranties. The Federal TradeCommission now requires used-cardealers to place a large sticker—a"Buyer's Guide"—in the window ofeveiy vehicle offered for sale. Thesticker must tell you whether thevehicle comes with an express war-ranty. If it does, the sticker must detailwhat the warranty includes. If thesticker says the car comes "as is," thismeans no warranty is provided. Insome places, however, state law pro-hibits a car from being sold "as is."Finally, the sticker will advise you toget all promises in writing and to havethe car inspected by a mechanicbefore you buy it. Keep in mind that acar's new-car warranty might stillapply when you purchase it used.

Consumer and Housing Law

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For Your Information ...Internet Resources for Car Buyers

Car shoppers can get blue-book prices for used cars,pricing for new cars, qualityreviews, and information onavailable financing at theKelley Blue Book Web site(www.kbb.com). Begun in1926, the Kelley Blue Bookis the industry standard forevaluating cars. Much of theinformation is also availablein Spanish.

Safety information is avail-able from the U.S. Departmentof Transportation's NationalHighway TransportationSafety Administration(www.nhtsa.dot.gov), whichhas a special online featurethat allows you to comparecrash and rollover tests forvarious cars, light trucks, vans,and SUVs. Tire informationis also available at this site.

Although car warranties are now easier to read and protectionshave been expanded, there are still time or mileage limits (or both)on warranties. Also, a warranty may become ineffective if you fail toperform scheduled maintenance or if you misuse the car. Always besure the warranty and any additional promises are in writing. Keepthese papers in a safe place.

Problem 28.1In addition to the purchase price, what other costs should you consider

when you are deciding to purchase a car? Where can you find informationabout each of these costs?

Financing a CarMost new-car buyers and many used-car buyers make their pur-

chases on credit. Buyers may select the length of the repaymentperiod, which may be as long as five years. The longer the repaymentperiov, the lower the monthly payments will be. However, longerrepayment periods also result in a larger amount paid in interest.Figure 28.1 on page 347 shows the total interest charges on a $6,000loan for a used car at a 10 percent interest rate over various repaymentperiods. Actual interest rates for car loans will vary depending upon avariety of factors, including whether the car you are purchasing is newor used. Interest rates are generally lower on new cars because of thehigher price of the vehicle. Interest rates also vary based on yourlender, your creditworthiness, and general economic conditions;

CHAPTER 28 Cars and the Consumer 345

Automobile financing is usually available from the followingsources: car dealers, banks, credit unions, and finance companies.When comparing finance charges among lenders, make certain thatthe same down payment and repayment periods are used for eachloan. In comparing terms, you will mostly be concerned with theannual percentage rate (APR). However, you should also read all ofthe terms carefully so that you can answer the following questions:

• Will there be a refund of finance charges if the loan is repaidahead of schedule?

• Will there be fair warning in the event of a repossession?

• Is there a penalty for late payments? If so, how much?

• Will all payments immediately become due if a payment is missed?

If you cannot answer all of these questions by reading the loanterms, have someone help you read and understand the agreement.

The Case o f . . .

The Used-CarPurchase

Hlaving saved $1,000 from her summer job,Sasha responded to an ad for "Like-New! One-Owner Used Cars." A salesperson for A-1 UsedCars watched Sasha wander around the lotuntil she was attracted to a bright-red compactcar. Sasha told the salesperson that this carlooked just right for her. He replied, "You'vemade a good choice. This is an excellent car.It will give you many years of good service."

Although the sticker price was $3,550, thesalesperson thought that he might be able toget Sasha a $50 discount because she was"a nice young kid getting her first car." Afterconferring with the sales manager, he toldSasha that she could have the car for $3,500and that the dealer could arrange to financethe car and sell her all necessary insurance.

Sasha knew that she would need a loan,and her parents had warned her that insurancewas required by law. Her excitement increasedas it appeared that all her needs could be metin one stop.

Sasha saw a sticker on the car's windowindicating that this car came with a warranty.The salesperson told her that A-1 Used Carswould make any repairs to the engine fordamage not caused by her misuse for 30 daysor 10,000 miles, whichever came first. Nowshe felt confident about using all of her savingsas a down payment. After all, what repair billscould she have with such a nice car accompa-nied by a terrific warranty?

Problem 28.2a. Make a list of things Sasha should have

done or thought about before going to A-1Used Cars.

b. Make a list of things Sasha should havedone at A-1 before agreeing to buy the car.

c. What promises, if any, did the seller maketo her? Did he say anything that could beconsidered puffing? If so, what?

d. What are the advantages and disadvan-tages to Sasha of obtaining financing andinsurance from the dealer?

e. Taking into account the lists you havemade, role-play Sasha's encounter with thesalesperson.

346 UNIT 4 Consumer and Housing Law

following°mpanies.-rtain that1 f°r each

with the•ead all oficstions:

is repaid

•n?

s missed?

the loanDemerit.

lowranty.Cars>r) dayslowsavings\r bills>mpa-

; and

havei the

FIGURE 28.1 Interest on a $6,000 Loan

AmountBorrowed

$6,000

$6,000

$6,000

APR (AnnualPercentage Rate)

10%

10%

10%

Term of Loan(in months)

24

36

48

MonthlyPayment

$276.87

$193.60

$152.18

TotalFinance Charge

$644.87

$969.71

$1,304.42

Problem 28.3Nathan is buying a used car for $7,000. He can make a down payment of $1,000 and needs to

borrow the remaining $6,000. Assume that credit is available only from the source listed above.

a. What is the total cost of the car if the term of the loan is 24 months? 36 months? 48 months?

b. If Nauiin decides to borrow the money, which credit arrangement would be least expensive?Which would be most desirable? Explain your answers.

Leasing a Car Rather than buying, consumers are increasinglyopting to lease automobiles. Under a lease agreement, the consumerdoes not own the car, but pays a monthly fee to drive the car fora certain time period (often two to four years). Sometimes, theconsumer pays an agreed-upon amount to purchase the car—whichamounts to the rest of the car's value—at the end of the term andthen gets ownership of the car. More often, though, the consumerreturns the car, pays any required end-of-lease charges, and "walksaway" at the end of the term. The lease agreement usually includesrestrictions on mileage and wear and tear, and imposes additional feesfor exceeding the limits on those terms. The lease agreement alsoincludes provisions for an initial down payment, security deposit,and other fees.

Typically, monthly lease payments are lower than monthly loanpayments. However, you do not own the car after paying off the leaseas you do after paying off an automobile loan. Under the federalConsumer Leasing Act, consumers have a right to information aboutthe costs and terms of a vehicle lease. This information helps youcom - -c lease offers and negotiate a lease that best fits your needs,budget, and driving patterns.

In considering how much you can afford for a car, you must alsoconsider the cost of fuel, repairs, license, registration fees, taxes, andauto insurance. Insurance payments can be a major cost. The pricewill vary based on the type of car you buy, where you live, how muchyou plan to drive the car, your driving record, your age and gender,and the company that sells you the insurance. A discussion of thevarious types of insurance can be found in Chapter 18.

What procedures mustyou follow to registera car and obtainlicense plates in yourcommunity?

CHAPTER 28 Cars and the Consumer 347