PURCHASING A VEHICLE

WHAT IS MY BEST OPTION FOR PURCHASING A VEHICLE?

Purchasing a vehicle can greatly affect your financial situation. In this lesson, you will:

 Define the terms associated with buying a car (including leasing, buying new and buying used)

 Research new and used-car values

 Identify the factors that affect the total price for a car (including the interest rate, the length of a contract, and the size of a down payment)

 Evaluate the costs and benefits of car-purchase options

Through this assignment you will gain a better understanding of the car-buying process and the components that affect your monthly payments. We will compare the purchase of a new car, used car, and a lease.

ASSIGNMENT INSTRUCTIONS

 Is there a new car or truck you have dreamed about owning? Now is your chance to see how much it would cost.

 First, choose a car or truck, then build and price a new model with varying terms and interest rates. Use terms three years and five years.   For interest rates use 4% and 8%.  

 For the same car go through the leasing options.

 Next you’ll look at a used model, including certified used models. You’ll also review warranty information on the vehicle.

 After completing the worksheet, summarize the activity in a reflective essay that includes your conclusion about which vehicle-purchasing option is best for you.

 Be careful about providing your email address or other contact information to auto dealerships, whose sales staff may contact you repeatedly.    Try not to provide your email address or phone number.

 Remember that this assignment is hypothetical. Relax and have fun.

PURCHASING A VEHICLE WORKSHEET

1. Build and price a new car of your choice (something other than the car your instructor demonstrated in class). 

a. What car do you want to buy?  What is the price of the new car? Include a pic.  

I want to buy Audi A7 2021. The price of it is $75,990.

b.  What features do you want it to have?  (e.g. heated seats, etc)

It has a very nice appearance and good power.  

c.  What is the car’s rating on IIHS? (https://www.iihs.org/iihs/ratings)?

d.  What is the car’s rating on NHSTA? (https://www.nhtsa.gov/ratings?cmpid=TSBSNF0117&gclid=CIiV1vyL194CFYnYswod41gBNw&gclsrc=ds)

Now Let’s Think About Money!!

2.  a. Calculate your monthly payment for a five-year term, 5% expected APR, with a $10,000 down payment.

Monthly Payment=((65990*(0.05/12)*(1+(0.05/12))^60)/((1+(0.05/12))^60-1)=$1,245.31

b. What happens to your payment if you decrease your term to three years?

Monthly Payment=((65990*(0.05/12)*(1+(0.05/12))^36)/((1+(0.05/12))^36-1)=$1,977.78

The monthly payment increase $1,977.78-1,245.31=$732.47

c. You lost your savings and can no longer afford to put money down on the car. The day worsens when the dealership informs you that your credit rating is less than ideal, and your expected APR is 18%. How does this affect your monthly payment for a three-year term?

Monthly Payment=((75990*(0.18/12)*(1+(0.18/12))^36)/((1+(0.18/12))^36-1)=$2,747.22

The monthly payment increase $2,747.22-$1,977.78=$769.44

d. Using the information in bullet a, multiply your monthly payments by the amount of months in the term to determine the total price you will have paid for the car. How much more are you paying for the car in comparison to the selling price?

$1,245.31*60=$74,718.6, $74,718.6+$10,000=$84,718.6

$84,718.6-$75,990=$8,728.6

There are $8,728.6 more I am paying for the car comparison to the selling price.

3. Visit a website that sells used cars (e.g., AutoTrader.com) to see how much the used version of the car you selected earlier cost. Use that price for the following questions.   What is the price of the used car?

a. Using the used car price, calculate your monthly payments for a five-year term, 5% expected APR, with $10,000 down. Compare the payments to that of a new car and discuss.

Monthly Payment=((34990*(0.05/12)*(1+(0.05/12))^60)/((1+(0.05/12))^60-1)=$660.30

It is $1,245.31-$660.30=$585.01 less than the new car.

b. What happens to your payment if you decrease your term to three years?

Monthly Payment=((34990*(0.05/12)*(1+(0.05/12))^36)/((1+(0.05/12))^36-1)=$1,048.68

The monthly payment increase $1,048.68-$660.30=$388.38

c. Once again, you cannot afford to put any money down on the car and the dealer informs you your poor credit results in an 18% APR. How does this affect your monthly payment for a three-year term?

Monthly Payment=((44990*(0.18/12)*(1+(0.18/12))^36)/((1+(0.18/12))^36-1)=$1,626.50

The monthly payment increase $1,626.50-$1,048.68=$577.82

d. Using the information in bullet a, multiply your monthly payments by the amount of months in the term to determine the total price you will have paid for the car. How much more are you paying for the car in comparison to the selling price?

$660.30*60=$3,9618, $3,9618+$10,000=$49,618

$49,618-$44,990=$4,628

There are $4,628 more I am paying for the car comparison to the selling price.

4. Find a leasing deal for the car used in the previous two questions.

a. State the terms of the lease.

b. Calculate how many miles you drive per month. Use that number to estimate the amount of miles you drive yearly. Is the allotted mileage for this lease a viable option for you? Explain.

c. If you stated you drive more than 1,000 miles every month, calculate the mileage overage fees you would incur based on the additional per mile cost stated in the lease.

d. Calculate how much you will have paid for the car after the 3 years including the money due at signing, any additional mileage and the monthly payment.

5. What is a certified used car?

6. What type of warranty does the company offer? What is covered and for how long? Is maintenance included?

a. New car

b. Certified used

LEMON LAWS

Lemon laws are in place to protect car buyers from getting a product that does work as intended.  They can vary by state.  Use this website https://www.lemonlawamerica.com/ to find the lemon laws for your state.

What conditions do your state lemon laws cover?

Does it cover used or leased cars under lemon laws?

PURCHASING A VEHICLE

Answer the following questions under each bullet point.  Do not use an essay format. Make sure you proof your work for grammar and word usage mistakes.

 Have you purchased a vehicle before? If so, do you have any regrets about the experience?

 After completing the worksheet, do you feel more confident about researching a vehicle?

 Now that you have gone through this exercise, if you were in the market for a car or truck, which option would you choose: buying new, used, or leasing? Explain how this choice will benefit you financially in the future.