MBF3C Lesson #9: Obtaining & Operating a Vehicle PERSONAL FINANCE MBF3C Lesson #9: Obtaining & Operating a Vehicle

Used cars are less expensive to buy and less expensive to insure Used cars are less expensive to buy and less expensive to insure. New cars can be bought or leased. Depending on your situation, there are advantages to buying or leasing. The initial costs for obtaining a new vehicle are usually greater than those for obtaining a used vehicle.

EXAMPLE 1: Buy a New Vehicle A local dealership is selling a new compact car for $17 995 plus taxes. The dealership offers financing at 4.9% annual interest, compounded monthly, over four years. You have saved $3000 for a down payment. You will finance the rest. What will be your monthly payment?

EXAMPLE 1: Buy a New Vehicle A local dealership is selling a new compact car for $17 995 plus taxes. The dealership offers financing at 4.9% annual interest, compounded monthly, over four years. You have saved $3000 for a down payment. You will finance the rest. What will be your monthly payment?

EXAMPLE 2: Total Cost of a Vehicle Refer to Example 1. a) Determine the total amount paid for the vehicle. b) Calculate the total interest paid.

EXAMPLE 2: Total Cost of a Vehicle Refer to Example 1. a) Determine the total amount paid for the vehicle. b) Calculate the total interest paid.

EXAMPLE 3: Lease a New Vehicle Leasing a vehicle is basically entering into a long- term rental agreement. You drive the car but you do not own it. To lease a new car selling for $24 000, a customer agrees to pay a $1000 down payment and to make 48 monthly payments of $369. a) Calculate the total cost of leasing the vehicle. b) Calculate the average cost per month over the life of the lease.

EXAMPLE 3: Lease a New Vehicle a) Calculate the total cost of leasing the vehicle. b) Calculate the average cost per month over the life of the lease. EXAMPLE 3: Lease a New Vehicle

EXAMPLE 4: Buy a Used Vehicle A used car will cost much less than a new model of the same car. Sometimes, a used car loan will have a shorter payback period than a loan for a new car. A car is advertised for sale in a local newspaper for $4500. a) Determine the total cost of the vehicle with 8% PST. b) Use a TVM Solver or an on-line calculator to determine the monthly payment for a $5000 loan at 8% interest, compounded monthly, for two years.

EXAMPLE 4: Buy a Used Vehicle a) Determine the total cost of the vehicle with 8% PST. b) Use a TVM Solver or an on-line calculator to determine the monthly payment for a $5000 loan at 8% interest, compounded monthly, for two years. EXAMPLE 4: Buy a Used Vehicle

Key Concepts Buying or leasing a new vehicle is a big expenditure. Often, buying or leasing a new vehicle involves making a down payment. A good used car will cost a lot less than a new model of the same car. Leasing a new vehicle is basically entering into a long- term rental agreement.

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OPERATING A VEHICLE! Once you obtain a vehicle of your own, the expenses really start to mount. You are now the principal driver so your insurance costs go up— sometimes they go way up! You drive more so your fuel costs go up. In addition, you are making payments on something that is losing value every day that you drive it.

INVESTIGATION: OPERATING EXPENSES Brianna is in her first year of college. She lives about 10 km from the campus. She just purchased her first car: a five-year- old compact for $5500. Brianna had some money saved for a down payment and borrowed $4000 from her credit union. With a partner, brainstorm the expenses that Brianna is likely to incur over the next 12 months and then estimate the costs. Separate the costs into fixed costs and variable costs .

EXAMPLE 1: Insure a Vehicle Ralf is 19 and single, and he owns a seven-year-old mid-sized car. He called several insurance agents and the lowest quote he received was $2620/year. There are two payment options: he can pay the insurance premium in full once a year, or he can make monthly payments of $230.

a) Calculate the annual cost if he chooses the monthly instalments a) Calculate the annual cost if he chooses the monthly instalments. b) Calculate the difference between the two payment methods. c) Suggest reasons why Ralf might choose each option. Ralf is 19 and single, and he owns a seven-year-old mid-sized car. He called several insurance agents and the lowest quote he received was $2620/year. There are two payment options: he can pay the insurance premium in full once a year, or he can make monthly payments of $230.

EXAMPLE 2: Calculate Fuel Cost DeVaughan’s truck has a 76-L fuel tank and a fuel efficiency rating of 11.8 L/100 km.

EXAMPLE 2: Calculate Fuel Cost a) Explain what the fuel efficiency rating on DeVaughan’s truck means. b) How far can DeVaughan’s truck travel on one tank of fuel? c) How much fuel would his truck use on a 450-km trip? d) Explain how to determine the cost of the fuel for the trip in part c).

a) Explain what the fuel efficiency rating on DeVaughan’s truck means. Under normal driving conditions, DeVaughan’s truck will use approximately 11.8 L of gas to travel 100 km. A vehicle that uses less fuel to travel 100 km is more fuel-efficient.

b) How far can DeVaughan’s truck travel on one tank of fuel?

c) How much fuel would his truck use on a 450-km trip?

d) Explain how to determine the cost of the fuel for the trip in part c). The cost of the fuel will be 53 times the current price of one litre of gas.

EXAMPLE 3: Depreciation Depreciation • the amount that the value of an item decreases over time A new mid-sized vehicle sells for $21 135. Marizia researched used cars of the same model and found the following information.

EXAMPLE 3: Depreciation a) Calculate the depreciation of the vehicle during the first year, in dollars. b) Calculate the depreciation after one year, as a percent of the new vehicle price. c) Calculate the depreciation after four years, as a percent of the new vehicle price.

EXAMPLE 3: Depreciation a) Calculate the depreciation of the vehicle during the first year, in dollars. EXAMPLE 3: Depreciation

EXAMPLE 3: Depreciation b) Calculate the depreciation after one year, as a percent of the new vehicle price. EXAMPLE 3: Depreciation

EXAMPLE 3: Depreciation c) Calculate the depreciation after four years, as a percent of the new vehicle price. EXAMPLE 3: Depreciation

Key Concepts Fixed costs are expenses that remain the same from one month to the next; variable costs are expenses that vary in their amount or their frequency. Depreciation is the amount by which a vehicle loses value over time. One of the major expenses for drivers is insurance. This is especially true for young drivers.

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