HACE 3200 1st Edition Lecture 14Outline of Last Lecture I. Consumer LoansII. Acceleration ClauseIII. Home Equity LoansOutline of Current Lecture I. Automobile Decision II. Leasing vs BuyingIII. WarrantiesIV. Lease PaymentCurrent Lecture- Chapter 8: The Automobile Decision o Is a tangible consumer durable: A good that provides benefits that extend beyond one year.- Expenses o Expenses for auto include: Insurance( vehicle model, driving record) Licensing( annual periodic expense) Maintenance and operating expenses( SUVs drink more gas than a Hyundai) Financing charges if applicable - Smart Buyingo Do you do your homework? Is the purchase a “need” or “want”?- Are you just having a midlife crisis? Does the purchase fit your budget?- Will you end up “car poor”? Will you lease or buy? Will you buy new or used?- Leasingo Sign a lease Negotiate a fair vehicle value( also known as the: Gross capitalized cost) Negotiate your trade in price( Kelly Blue book)o Negotiate a low finance chargeThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.o Choose a vehicle with slow depreciation - Types of Leaseso Closed-end leases, or walk-away leases Normally offer a purchase option Require the dealer to be responsible for resale Account for about 80% of all leaseso Open-end leases Compare the fair market value to the lease’s residual value of the vehicle Are to be avoided because you pay the difference- When is Leasing a good option?o If you are financially stableo If you drive less than 15,000 miles annuallyo If you take good care of your vehicleso If you use your vehicles for business travelo If you do not modify your vehicleso If the vehicle you are considering doesn’t depreciate too quickly - Your monthly Lease Paymento Your lease payment depends on the following factors Agreed-upon price Up-front fees Down payment or trade allowance Residual value Finance charge Length of the lease- Amount you pay for a leaseo No easy formulao Lease payments are generally less than purchasing paymentso Many have large down payments- Purchasing your vehicleso Narrow down your selection Comparison shop: price, product features, and quality Be informed: check library and web sources - New or Used?o New car: Great Warranties available now:- Hyundai: 10 year, 100,000 mile warranty- Chrysler, Dodge, Jeep: 7 year, 70,000 mile 0.0% financing for up to 72 months Must meet credit qualificationso Rebates To you or to the dealer?- New Vehicleso Invoice price: Price manufacturer charges the dealero Base Price Cost of car including standard equipment and factory warrantyo Dealer Sticker price Dealer installed options, and dealer markupo Monroney sticker price on side window Base price + manufactured installed options, fuel economy- Invoice Priceo Generally the most important price to know when shopping for a new car The dealer cost may be less than invoice due to:- Rebates, discounts, allowances, incentives Gives you the leverage you need to pay the price you for your new vehicle- New Auto Purchaseo Take advantage of new car sales, nut negotiate the price Know the dealer’s cost of the vehicle (from invoice) Understand the various dealer markups or holdback! Be aware of any rebates that may applyo New auto purchase (cont’d)Evaluate financing alternatives Determine the length of financing Shop around to find the best interest rate Choose a financing period and rate to give you an affordable monthly payment Or use PVA to figure payment- 0.0% financing vs. Rebateso Read the fine print! You don’t usually get both!o 0.0% financing may be tied to huge down paymento Rebates generally go to the dealer and are usually included in the advertised price- Used Vehicleso Who absorbs the initial depreciation in price?o Some come with limited warrantieso Best buy is a vehicle 2 to 3 years
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