Section 16.1

Motor Vehicle Insurance Chapter 16 Owning a Vehicle Section 16.1 Acquiring a Vehicle Section 16.2 Motor Vehicle Insurance

What You’ll Learn How to identify important parts of a loan agreement (p. 338) How to trade in a vehicle (p. 341) How to identify the pros and cons of leasing a vehicle (p. 342)

What You’ll Learn How to compare options for buying a pre-owned vehicle (p. 342) How to pursue legal remedies if you buy a defective vehicle (p. 347)

What You’ll Learn How to recognize some federal laws designed to protect you when you buy a vehicle (p. 348) How to summarize the legal aspects of repairing your vehicle (p. 350)

Why It’s Important Knowing about financing, buying, and leasing a vehicle will enable you to make better purchase decisions.

Legal Terms finance charge (p. 338) annual percentage rate (APR) (p. 338) Used Car Rule (p. 344) Buyer’s Guide (p. 344) repossess (p. 346) adhesion contract (p. 347)

Section Outline Laws of Ownership Financing a Vehicle Buying a New Vehicle Trade-In

Section Outline Leasing a New Vehicle Buying a Pre-Owned Vehicle Consumer Leasing Act Buying a Pre-Owned Vehicle Buying from a Dealer Buying from a Private Party Buying from Rental Companies

Section Outline The Contract to Buy a Vehicle What to Do if You Buy a Defective Car Federal Consumer Protection Odometer Protection Repairing a Vehicle

Pre-Learning Question What laws do you think apply to buying a vehicle?

16.1 Laws of Ownership The law that applies to the purchase of a vehicle comes from several sources. The Uniform Commercial Code Consumer protection laws Laws regulating credit

Pre-Learning Question What information should you have before you buy a vehicle using credit?

Financing a Vehicle One of the first steps in buying a car is to decide how much you can afford to pay. You can buy a car with cash with credit

Financing a Vehicle Federal law requires lenders to disclose the finance charge and annual percentage rate (APR) to borrowers.

Financing a Vehicle The finance charge is the cost of the loan in dollars and cents. The annual percentage rate (APR) is the true interest rate of the loan.

What You Should Know Before You Buy The exact price you’re paying for the vehicle The amount you’re financing The finance charge

What You Should Know Before You Buy The APR The number and amount of payments The total sales price (the sum of the monthly payments plus the down payment)

What is the difference between the finance charge and annual percentage rate?

ANSWER The finance charge is the dollar amount of the interest, and the APR is an interest rate.

Pre-Learning Question What steps should you take before buying a new vehicle?

Buying a New Vehicle After deciding how much you can afford to pay for a car, when buying a new car you should learn about the cars you may be interested in research pricing

Trade-In When buying a new car, do not discuss a trade-in with the dealer until you have negotiated the best price for your new car.

Trade-In You should also know the value of your trade-in, which can be found on the Internet or in the library.

Pre-Learning Question How is leasing a vehicle different from buying one?

Leasing a New Vehicle The advantages to leasing a new vehicle are: low down payment smaller monthly payments

Leasing a New Vehicle The disadvantages to leasing a new vehicle are: most expensive way to acquire a car after making a lot of payments, you end up with nothing to trade in toward your next vehicle

Consumer Leasing Act The Consumer Leasing Act is a federal law requiring businesses to tell you about all of the terms of a lease of personal property.

Consumer Leasing Act This information can be used to compare different leases or to compare the cost of leasing with the cost of buying.

Pre-Learning Question Where can you buy a pre-owned car?

Leasing a New Vehicle A pre-owned vehicle may be purchased from a new car dealer a used car dealer a car rental company a private party

Leasing a New Vehicle Sometimes banks and loan companies

Buying from a Dealer A used car dealer may have a large selection of cars, but often does not maintain facilities to service the car after you buy it.

Buying from a Dealer New car dealers often sell used cars that they have taken in for trade and have service facilities.

Warranties When selling a vehicle, a dealer gives an implied warranty that the vehicle is merchantable, unless this warranty is excluded. often gives a 30-, 60-, or 90-day guarantee.

The Used Car Rule The FTC’s Used Car Rule requires all used car dealers to place a large sticker, called a Buyer’s Guide, in the window of each used vehicle they offer for sale.

The Used Car Rule The guide explains any specific warranty protection that is provided and also states whether there is no warranty, an “as is” warranty, or an implied warranty.

Buying from a Private Party The advantage to buying from a private party is that the prices are lower, but there are disadvantages, as well. no implied warranty of merchantability no recourse if something goes wrong

Buying from a Private Party Another disadvantage is that the car might be stolen. In this case, a bank or loan company may have the right to repossess, or take back, the car, regardless of who presently owns it.

Buying from a Private Party Before you buy from a private party, be sure to: test-drive the vehicle ask for the vehicle’s maintenance record talk to previous owners ask to see the certificate of title

Buying from Rental Companies Advantages: are usually only a year or two old can be good buys usually have had regular maintenance come with warranties

Buying from Rental Companies Disadvantages: have probably had heavy use have high mileage

Pre-Learning Question What form should a contract to buy a vehicle take?

The Contract to Buy a Vehicle Under the UCC, a contract for the sale of goods valued at $500 or more must be in writing to be enforceable.

The Contract to Buy a Vehicle When private parties enter into a contract, they can simply write on a piece of paper that one party agrees to sell and the other party agrees to buy the vehicle.

The Contract to Buy a Vehicle The contract between private parties must also identify the vehicle and be signed by the seller.

The Contract to Buy a Vehicle When a contract is entered into between a private party and a dealer, the private party is usually at a disadvantage. The dealer asks the buyer to sign a printed form.

The Contract to Buy a Vehicle A sentence on the front of the form says that the buyer agrees to the terms on the reverse side. The back of the form contains a full page of small-print terms that favor the seller.

The Contract to Buy a Vehicle Such a standard-form contract is called an adhesion contract. Smart buyers read the small print and cross out items with which they disagree.

What to Do if You Buy a Defective Car If you buy a car that continuously has mechanical problems, you should notify the seller immediately.

What to Do if You Buy a Defective Car The seller can be asked to fix the problem pay to have the vehicle fixed give you your money back

Revoking the Acceptance If you buy a car that doesn’t conform to the contract, you may be able to revoke your acceptance, even after taking possession of the vehicle.

Revoking the Acceptance This revocation is allowed under the UCC if the defect is serious and undetectable. It must be made within a reasonable time after the defect is discovered.

Notifying the Seller about Defects Buyers must notify sellers of defects in vehicles within a reasonable time after the purchase. If you fail to do so, you may lose the right to recover.

State Lemon Laws Many states have passed “lemon laws” to protect consumers when they buy defective vehicles, either new or used.

State Lemon Laws A “lemon” is defined in one state as “a substantially defective new car that has been at a dealer’s three times for the repair of the same defect or any combination of defects.”

Name two places to buy a pre-owned vehicle.

ANSWER Answers include a new car dealer, a used car dealer, a car rental company, or a private party.

Pre-Learning Question What federal laws help protect vehicle consumers?

Federal Consumer Protection The federal Motor Vehicle Information and Cost Savings Act has established bumper standards for passenger vehicles. The act also establishes average fuel economy standards.

Odometer Protection It is illegal for a vehicle owner to turn back or disconnect the odometer, or mileage indicator, of a vehicle.

Odometer Protection The federal odometer law requires everyone who transfers a vehicle, unless it is more than 25 years old, to provide a written mileage disclosure statement.

Pre-Learning Question What state laws can help protect vehicle consumers?

Repairing a Vehicle Many state laws require motor vehicle repair shops to be licensed and registered. Laws are being adopted in many states requiring: repair estimates advanced disclosure of prices specific training for mechanics

Repairing a Vehicle Some states require automobile repair shops to be bonded. The bonding company is an insurer who must pay the consumer for losses suffered as a result of wrongdoing on the part of the repair shop.

Reviewing What You Learned Section 16.1 Assessment Reviewing What You Learned What six aspects of the loan agreement should you be sure you understand before you sign the loan documents?

Reviewing What You Learned Answer Section 16.1 Assessment Reviewing What You Learned Answer (1) exact price (2) amount financed (3) finance charge (4) APR (5) number and amount of payments (6) total sales price

Reviewing What You Learned Section 16.1 Assessment Reviewing What You Learned What should you do before you buy a new car?

Reviewing What You Learned Answer Section 16.1 Assessment Reviewing What You Learned Answer Determine how much you can afford; decide what car model/options you want; conduct research on pricing.

Reviewing What You Learned Section 16.1 Assessment Reviewing What You Learned Discuss the advantages and disadvantages of leasing a car.

Reviewing What You Learned Answer Section 16.1 Assessment Reviewing What You Learned Answer Advantages: low down payment, smaller monthly payments. Disadvantages: most expensive way to obtain a new car; after making payments, you own nothing and have nothing to trade in on your next vehicle.

Reviewing What You Learned Section 16.1 Assessment Reviewing What You Learned Why might it be risky to purchase a pre-owned vehicle from a private party?

Reviewing What You Learned Answer Section 16.1 Assessment Reviewing What You Learned Answer Private parties do not give the implied warranty of merchantability. There is no recourse if something is wrong with it.

Reviewing What You Learned Section 16.1 Assessment Reviewing What You Learned What should you do if you buy a defective car?

Reviewing What You Learned Answer Section 16.1 Assessment Reviewing What You Learned Answer Notify the seller at once.

Reviewing What You Learned Section 16.1 Assessment Reviewing What You Learned What is the purpose of the federal odometer law?

Reviewing What You Learned Answer Section 16.1 Assessment Reviewing What You Learned Answer It requires everyone who transfers a vehicle, unless it is over 25 years old, to give the transferee a written mileage disclosure statement.

Reviewing What You Learned Section 16.1 Assessment Reviewing What You Learned Why do some states require auto repair shops to be bonded?

Reviewing What You Learned Answer Section 16.1 Assessment Reviewing What You Learned Answer The bonding company acts as an insurer who must pay the consumer for losses if the repair shop causes damage.

Critical Thinking Activity Buyer’s Guide Section 16.1 Assessment Critical Thinking Activity Buyer’s Guide Visit a used car dealer and read the Buyer’s Guides displayed on several of the cars. Decide whether you would be willing to purchase the cars based on the information provided in the Buyer’s Guides.

Critical Thinking Activity Answer Buyer’s Guide Section 16.1 Assessment Critical Thinking Activity Answer Buyer’s Guide Answers will vary depending on the Buyer’s Guides the students inspect.

Legal Skills in Action Automobile Warranties Section 16.1 Assessment Legal Skills in Action Automobile Warranties In teams of four, contact three automobile dealerships or car rental companies that sell used cars. Ask about the warranties they provide on the used cars they sell.

Legal Skills in Action Automobile Warranties Section 16.1 Assessment Legal Skills in Action Automobile Warranties Make sure you find out if the warranties cover both parts and labor. Next, as a group, come to consensus as to which warranty is best.

Legal Skills in Action Answer Section 16.1 Assessment Legal Skills in Action Answer Automobile Warranties Answers will vary but should include a comparison of the different warranties located by the groups.

End of Section 16.1