1. Buying and Insuring a Car
Chapter 16
Buying and Insuring a Car

2. 16.1 Acquiring a Vehicle
After finishing this section, you will know how to:
Identify important parts of a loan agreement
Trade in a vehicle
Identify the pros and cons of leasing
Compare buying options for buying a pre-owned vehicle
Pursue legal remedies if you buy a defective vehicle

3. Your taste and how much you can afford determine what car you can buy.
Laws that apply to car purchases:
UCC
Federal and State Consumer Protection Laws
Laws regulating credit
Insurance Laws

4. Financing Cars 1st Step- how much can you afford
This depends largely on the amount of money you:
Have saved
Earn
Already owe to others
Living expenses
Cash customers are in a better bargaining position.

5. Truth in Lending Act- Regulation Z- a federal law requiring lenders to disclose the finance charge and the APR
Finance charge- the actual cost of the loan in dollars and cents
APR- the true interest rate of the loan

6. Some dealers offer very low financing rates for specific models.
The dealers may not be willing to negotiate on the price of these cars.
A large down payment is usually required.
May be asked to purchase credit insurance- pays off your loan if you die or become disabled
Monthly payments are the most expensive form of credit
Example 1

7. FTC- when getting credit through a dealer, any defense you could use against the dealer, you can use against the finance company
Example 2 The above rule does not apply if: you borrow money to buy a car from a lending company that as no arrangement with the seller
Example 3

8. Where to Buy a Used Car
1. Used car dealer- larger selection, lower prices, poor service, not sure where the car came from
2. New car dealer- taken in from trade, have good service facilities
Implied warranties- when a car dealer sells a car they give an implied warranty that the car is merchantable, meaning that the car is fit for ordinary purposes
Example 4

9. Express warranties- 30, 60, or 90-day warranties are given by dealers that cover parts and labor or labor only
The Used Car Rule 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
Buyer’s Guide- sticker placed in the window of all used cars

10. The Buyer’s Guide includes:
Whether the vehicle comes with a warranty and what the warranty covers
Whether the vehicle comes with no warranty—“as is” – or with implied warranties only
That you should ask to have the car inspected by your own mechanic
That you should get all promises in writing
What some of the major problems are that may occur in any car
The buyer’s guide becomes part of the sales contract

11. Used car- one that is driven more than to the dealer and for a test drive
motorcycles are NOT covered

12. 3. Private Party- caveat emptor
Advantage- lower cost
Risks- no implied warranty of merchantability, could be stolen, bank loan (bank has the right to repossess)
Repossessed cars are a source for used cars.

13. 4. Car Rental Company- buy fleets of cars
Advantages- low cost, well maintained, warranties
Disadvantage- high mileage

14. Buying a Car—New or Used
2 steps- contract to sell and taking possession
Usually over $500, should be written
Private party- could be done on the deposit check
Dealer- buyer is at a disadvantage—printed form, agree to front and back of the form, back usually favors the seller
Example 5

15. Adhesion Contract- standard form made by the seller to bind the contract. You may cross out parts you don’t agree with.

16. Buyers Remedies for a defective car:
breach of express warranty
merchantability warranty
fraud
state consumer protection laws

17. UCC- buyer may revoke the acceptance even after the acceptance if there is a serious defect within a reasonable time
must notify the seller of any defect
State Lemon Laws- PA- new cars that have been to the dealer at least 3 times (same or different defects)
no older than 1 year or 15,000 miles

18. Federal Consumer Protection- the labels on a new car must show: fuel economy for each vehicle, estimated annual fuel cost of operating the automobile, and range of fuel economy of comparable automobiles

19. Odometer Protection- everyone who transfers under 25 years old—written mileage disclosure
Disclosure must be given when:
sold or given away
merchant or non-merchant
mileage must be noted if ever turned back to 0
Car buyers may sue people who violate this law and may recover three times the amount of the damages they suffered or $1,500 whichever is greater

20. Theft Protection cars are given ID numbers in order to reduce theft and major replacement parts
Leasing a Car- least expensive way to obtain a car
Advantage- low down payment and smaller monthly payments
Disadvantage- own nothing at the end of the lease

21. Having the Car Repaired- repair shops must be licensed in order to get insured

22. Automobile Insurance
Financial Responsibility Laws- owner of the car involved in an accident is financially able to pay for any damage
deposit money
deposit bonds and or securities
liability insurance
most people carry insurance

23. Types of Insurance
1. Bodily injury liability insurance- protects policyholder from claims or lawsuits for injuries or death caused by his or her negligent operation of a motor vehicle
2. Property damage liability insurance- provides protection when other people bring claims or lawsuits against the insured for damaging property of theirs, such as a car, a fence, or a tree. PA-must have!

24. 3. Collision insurance- pays for damage to the insured’s own car when it collides with another car or object or when it turns over
Doesn’t matter who is at fault
Only collect the actual damage- market value
Deductible clause- $250 -$500—insured agrees to pay the first

25. 4. Comprehensive insurance- covers damage to the insured’s car from a variety of sources other than collision
Includes: fire, lightening, flood, hail, riot, or vandalism
Example 6

26. 5. Medical payments insurance- pays for medical expenses resulting from bodily injuries to anyone occupying the policy holder’s car
6. Uninsured motorist insurance- protection when the insured is injured in an automobile accident caused by another driver who is at fault and has no insurance
also covers hit and run
only covers bodily injuries, not automobile

27. No-Fault Insurance- person is compensated fully and quickly regardless of who is at fault
Old- only could collect if you proved fault
Many lawsuits- PA limit is $750