Personal Finance Garman/Forgue Tenth Edition Chapter 8: Vehicle and Other Major Purchases PPT slide program prepared by Amy Forgue and Ray Forgue.

Introduction Planned Buying requires thinking through all of the details of purchase from the initial desire to buy to your satisfaction after the purchase. There are seven distinct steps in planned buying. Copyright ©Cengage Learning. All rights reserved.

Your Next Five Years In the next five years: 1. Check repair ratings history in the April issue of Consumer Reports magazine when planning to buy vehicles. Copyright ©Cengage Learning. All rights reserved.

Your Next Five Years 3. Purchase late-model, high-quality used vehicles and check their ownership history at www.carfax.com and any recall history at www.nhtsa.gov. 4. Obtain price information from at least three sources and aggressively negotiate prices and financing terms for major purchases. Copyright ©Cengage Learning. All rights reserved.

Your Next Five Years 5. Never tell a seller what payment you can afford. 6. Promptly and firmly seek redress when dissatisfied with purchases or services. Copyright ©Cengage Learning. All rights reserved.

Learning Objective #1 Explain the three steps in the planned buying process that occur prior to interacting with sellers. Copyright ©Cengage Learning. All rights reserved. 8 - 6

Figure 8.1: The Steps in Planned Buying Copyright ©Cengage Learning. All rights reserved. 8 - 7

Do Your Homework What do you really want? Needs Wants Copyright ©Cengage Learning. All rights reserved.

Figure 8.2: Priority Worksheet (for Sharon Wilson) Copyright ©Cengage Learning. All rights reserved.

How To Buy Smart Do not buy on impulse. Pay cash. Buy at the right time. Do not pay extra for a “name.” Recognize the high price of convenience. Copyright ©Cengage Learning. All rights reserved. 8 - 10

Become an Expert Preshopping Research: Gathering information before actually beginning to interact with sellers. Copyright ©Cengage Learning. All rights reserved.

Become an Expert What price should you expect to pay? Manufacturer’s Suggested Retail Price (or MSRP): The suggested initial asking price. Dealer Sticker Price: Includes additional charges tacked on by the dealer. Copyright ©Cengage Learning. All rights reserved.

Become an Expert What is a fair interest rate? Shop for low rates Obtain a loan preapproval for the lowest rate Copyright ©Cengage Learning. All rights reserved.

Become an Expert Rebate: A partial refund of a purchase price offered as an inducement to buy. Is a rebate available? Should you take a rebate or low-rate financing? Copyright ©Cengage Learning. All rights reserved.

Become an Expert What is my trade-in worth? Should I trade-in or sell my old vehicle myself? Copyright ©Cengage Learning. All rights reserved.

Become an Expert The bottom line? Can I afford it based on: The price? The down payment? The time period for repayment? The trade-in? The interest rate? Copyright ©Cengage Learning. All rights reserved. 8 - 16 16

Concept Check 8.1 What is planned buying? Distinguish between needs and wants, and explain why it may be better to act as if no needs exist. Copyright ©Cengage Learning. All rights reserved.

Concept Check 8.1 Describe the types of information you need to be your own expert when making big-ticket purchases. Summarize the process to determine whether you can afford a particular purchase. Copyright ©Cengage Learning. All rights reserved. 8 - 18

Learning Objective #2 Describe the five aspects of major purchases that require comparison shopping. Copyright ©Cengage Learning. All rights reserved.

Comparison Shopping Use comparison shopping to find the best buy. Compare prices using the Rule of Three. Copyright ©Cengage Learning. All rights reserved.

Comparison Shopping Compare financing options. Consider leasing instead of buying. Leasing: Renting a product while the ownership title remains with the lease grantor. Copyright ©Cengage Learning. All rights reserved.

Leasing Terminology Gross Capitalized Cost Capitalized Cost Reductions Adjusted Capitalized Cost Residual Value Money Factor Copyright ©Cengage Learning. All rights reserved.

Leasing Terminology Open-end lease Closed-end lease (or walkaway lease) Excess mileage charge Copyright ©Cengage Learning. All rights reserved.

Leasing Terminology Additional leasing fees: Disposition fee Early termination charge Early termination payoff Copyright ©Cengage Learning. All rights reserved. 8 - 24 24

Compare Warranties Warranties Implied Warranty versus Express Warranties Full Warranty versus Limited Warranties Copyright ©Cengage Learning. All rights reserved.

Compare Warranties An extended warranty (or service contract) is an agreement to provide repair or replacement of covered components. The difference between an extended warranty and a regular warranty is the fact that you pay for an extended warranty. Extended warranties are overpriced! Copyright ©Cengage Learning. All rights reserved. 8 - 26

Concept Check 8.2 What is the goal of comparison shopping? Explain why lease payments for a new vehicle are lower than loan payments for the same vehicle. Describe the relationships among capital cost, capital cost reductions, and residual value in a lease. Copyright ©Cengage Learning. All rights reserved.

Concept Check 8.2 Explain the difference between an implied warranty and an express warranty. How do they relate to the term as is? What is an extended warranty? What is a disadvantage of such a contract? Copyright ©Cengage Learning. All rights reserved.

Learning Objective #3 Negotiate and decide effectively when making major purchases. Copyright ©Cengage Learning. All rights reserved.

Negotiating Effectively Negotiating (or haggling) Successful negotiators are armed with information. Negotiate effectively but decide at home. Copyright ©Cengage Learning. All rights reserved.

Negotiating Effectively Negotiate your price. New-Vehicle Buying Services and Professional Shoppers Invoice Price (or Seller’s Cost) Dealer Holdback (or Dealer Rebate) Copyright ©Cengage Learning. All rights reserved.

Negotiating Effectively Negotiate your interest rate only after getting a firm price for the vehicle. Negotiate the lowest possible APR offered through the dealer. Borrow elsewhere if the rate is lower. Copyright ©Cengage Learning. All rights reserved.

Negotiating Effectively Negotiate your trade-in. Obtain a firm commitment on a trade-in allowance from the dealer. Sell the vehicle yourself if the allowance is too low. Be wary of High-Balling Copyright ©Cengage Learning. All rights reserved.

Make the Decision At Home Finalizing a car deal. Be wary of Low-balling. Have the dealer sign the buyer’s order first. Walk away if there is an attempt to change the deal at the very last minute. Copyright ©Cengage Learning. All rights reserved.

Concept Check 8.3 List some of the complexities in vehicle buying and offer your advice on how to get a best buy. What three aspects of a vehicle purchase should be negotiated? In what order? Copyright ©Cengage Learning. All rights reserved.

Concept Check 8.3 Why should you make major purchase decisions at home? Summarize how to use a decision-making grid. Copyright ©Cengage Learning. All rights reserved. 8 - 36

Learning Objective #4 Evaluate your purchase decisions and, if necessary, effectively seek redress. Copyright ©Cengage Learning. All rights reserved. 8 - 37

Evaluate Your Decision Redress Alternative Dispute Resolution Programs Copyright ©Cengage Learning. All rights reserved.

Evaluate Your Decision Mediation versus Arbitration Lemon Laws Small-Claims Court Copyright ©Cengage Learning. All rights reserved. 8 - 39 39

Table 8.3: Complaint Procedures Levels to Bring Your Complaint 1. Local business 2. Manufacturer 3. Self-regulatory organizations 4. Consumer action agencies 5. Small-claims or civil court Copyright ©Cengage Learning. All rights reserved.

Concept Check 8.4 Outline the steps to go through to seek redress. Distinguish between mediation and arbitration. How do lemon laws work? Copyright ©Cengage Learning. All rights reserved.

The Top 3 Financial Missteps In Big-Ticket Purchases People slip up in purchasing vehicles and other big-ticket items when they do the following: 1. Rely upon the seller as their source of information for price, financing terms, and/or trade-in value. Copyright ©Cengage Learning. All rights reserved.

The Top 3 Financial Missteps In Big-Ticket Purchases 2. Tell a seller what they can afford to pay (because the seller can then avoid disclosing their lowest price). 3. Fail to complain when products fail to perform as expected. Copyright ©Cengage Learning. All rights reserved.

Do It NOW! Becoming a smart shopper does not have to wait until you make a major purchase such as a vehicle. Start today by: 1. Making a list before going to the grocery store and then buying only what is on the list unless the item is on sale and you know you will be using it soon. Copyright ©Cengage Learning. All rights reserved.

Do It NOW! 2. Setting up a filing system for the warranty information and receipts for all products you buy that have a warranty. 3. Trying the generic version of food products you regularly buy to see if the name brand really is worth the extra cost. Copyright ©Cengage Learning. All rights reserved.