Automobiles and Other Major Purchases

Guidelines for Wise Buying  Control buying on impulse  Pay cash  Buy at the right time  Don’t pay extra for a name  Recognize the high price of convenience shopping  Use life cycle planning for major purchases

Key Advice for vehicles  Pre-shopping is essential!  Match purchase decisions to vehicle usage patterns  Leasing better if you want a new vehicle every 1- 3 years – buying is better financially overall.  Haggle over the price  Buy recent-year high quality used  Check repair ratings

Steps taken before the sale  Prioritize your wants Needs is something thought to be a necessity Wants is unnecessary but desired. Prioritizing wants

Do necessary pre-shopping Research  Read about the product in Consumer Reports  Review other publications on the product  Investigate with the Consumer Information Center

Price  MSRP – Manufacturer’s Suggested Retail Price (the initial asking price)  On new cars the MSRP is known as the sticker price.  Dealer sticker price (tacked on charges)  Invoice or seller’s cost which is the price the dealer paid for the vehicle.  Manufacturer’s sometimes offer dealer holdback – so the sticker price isn’t true.

Trade-In  You may be able to trade in an old-model when buying a new one.  Generally people receive a better price by selling a vehicle on their own rather trading it in.

Cost of Financing  Important to gather information on the current APR  Choosing between debate and low-cost financing (decision making worksheet helps you do the math)  Rebates are really additional borrowing beyond the true price.

Fit the Expenditure into Your Budget  Unaffordable cash purchase may wreck a budget for a month or two – but an ill- advised credit purchase may have negative effects for years.  Consider cost per use of product.

Get Help When Buying a New Vehicle  New Vehicle Buying Service  Search the Internet for help  Ask about insurance rates  Consult your mechanic

Keys to Buying a Safe Car  Government safety tests  Check on recalls  Look for a model with standard air bags  Look for a model with anti-lock brakes  Consider side-impact protection  Think about theft as well as accidents

Comparison Shopping  Look for the best buy – not just the cheapest price.  Rule of three  Use your knowledge from this class (and 138) to develop a chart of desirable or undesirable features.  Compare financing options

Compare Warranties  Implied warranty the product sold is suitable for sale.  To avoid implied warranties – seller can sell something “as is”.  Express warranties – written warranties.

Full Warranty  Product must be fixed at no cost the buyer within a reasonable time after the owner has complained.  The owner will not have to undertake an unreasonable task to return the product  If it cannot be fixed it must be replaced within a reasonable amount of time.

Limited Warranty  May offer free parts but not free labor (or visa versa)  One part may be under full warranty and other parts under limited warranty.

Service Contracts  Agreement to provide free (or nearly free) repair to certain components of the product for a certain amount of time.  The cost is paid by the buyer either in one lump sum or over a period of time.  More than 80% of all service contracts are never used, total payments are usually less then 10% of the money spent on contracts.

Getting things fixed  Get an estimate in advance  Ask how long the repairs will take  Get a claim check !!!!!!  Ask to be given all replaced parts  Stay home when in-home repairs are made  Get a written receipt.

Leasing vs. Buying  Leasing is essentially renting the product.  Five terms are important  Gross capitalized cost (price of the vehicle plus what the dealer paid to finance plus other items like insurance or maintenance.)

Five items cont.  Capitalized cost reductions (moneys paid on the lease at its inception including down payment, trade-in, rebate)  Subtract the capitalized cost reductions from the gross capitalized cost you get the adjusted capitalized cost.  Money factor measures the rent charge portion. (May not include all costs – be leery)

Five Items cont.  Residual value is the projected value of a leased asset at the end of the lease time period.

How leases work  First month’s lease and a security deposit.  Using the cost of the using the asset over the lease period divided by the number of months used is the monthly payment.  For example $40,000 Suburban for 3 years. When you return it, the Suburban will still be worth $28,000 so your monthly payments are on $12,000 not $40,000.

Open-ended Lease  Difference between the projected residual and the actual market value a the end of the lease period. If it depreciates faster than expected their may be a charge at the end.  Law maximizing the fee to three times the monthly payment.

Close-ended lease  Walkaway leases – no extra fee for market depreciation HOWEVER if it has greater than normal wear or mileage there may be an extra fee.

Open and Close Ended  You may purchase the vehicle at the end of the lease period Open-ended pay actual cash value Close-ended pay residual value

Other fees  Acquisition feed – pays for credit report, application fee, etc.  Disposition fee – lessor must prepare it for resale.  Early termination fee – decide to end the lease prematurely.  Early termination payoff – early fee plus unpaid balance.

Deal Negotiations  Approach any deal as if you could simply walk away from it.  Remember the concept of redress