L earning Situation. Determining the cost of buying a used car. What kind of used vehicle would you like to buy?

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1 Buying a Used Car Length : 9-12 hours L earning Situation at a Glance Brief description Determining the cost of buying a used car. Broad Area of Learning : Environmental and Consumer Awareness Legend Categories of Actions CA1 : Interpreting financial information CA2 : Producing financial information CA3 : Performing calculations involving amounts of money Operational Competencies OC1 : Thinks logically OC2 : Communicates Essential Knowledge EK1 : Rational numbers EK2 : Proportional relations EK3 : Financial concepts EK4 : Sets and statistics??? Pedagogical Intention The student should be able to use the four operations and percentages to arrive at an informed consumer decision. Questions or tasks suggested to the student. What kind of used vehicle would you like to buy? 1 There are lots of advertisements for used cars in the newspaper and on line. Other drivers may have suggestions. Would you like to consider an environmentally-friendly vehicle? Natural Resources Canada has some suggestions on their website. Choose a make, a model and a year. Note your 2nd and 3rd choice. OC2 Finance and Arithmetic MTH

2 What is the cost of the vehicle you want to buy? Find the book value of the vehicle you are interested in. Book value is the value of a used car in good condition. Do an internet search for the cost of used cars to find a site that provides this information. Your teacher can help you find web sites throughout this learning situation. Alternatively, you can establish a cost from the advertisements you have found. You will have to select the options you want on the vehicle and decide how much mileage (how many kilometres) you will accept on the vehicle. 3 2 How much mileage (kilometres) are you prepared to accept on the car? What is the book value of the vehicle you have chosen? You will need to have a place to keep track of the amounts you find and to perform your calculations. You will need a worksheet. If you use spreadsheet software, you will be able to make adjustments to your calculations easily. CA1, OC1, EK1, EK3 How much tax will you have to pay on the vehicle? Calculate the sales taxes that will be added to the price of the vehicle. There are two possibilities: if you buy your used car from an individual, you pay only Quebec Sales Tax (QST), whereas if you buy your car from a dealer, you pay both Goods and Service Tax (GST) and QST. The Quebec Consumer Protection Agency (Office de la protection du consommateur) offers some good advice about this choice. While there is less tax to pay when you buy a used car from an individual, you won t have the guarantee normally offered by a dealership (up to 6 months, depending on the vehicle s mileage). What about your driver s licence? Even before borrowing the money you need to buy your car, you need to be able to pay cash for your driver s licence and your car registration. 4 You now need to determine the cost of your driver s licence. The cost of your driver s licence includes a contribution to the public insurance program and depends on how many demerit points you have. Consult the site of the SAAQ (Société d Assurance Automobile du Québec Québec Automobile Insurance Board) to find your annual driver s licence cost. CA1, CA3, OC1, OC2, EK1, EK3 What about the cost of registering and getting licence plates for your vehicle? 5 Your licence plates are proof that your vehicle is legally registered. Consult the SAAQ site again to find the annual cost of registering a passenger vehicle. CA1, CA3, OC1, OC2, EK1, EK3 How much money will you need to borrow? 6 How much cash do you have available to put down toward purchasing your car? How much is left once you have paid for your driver s licence and your car s registration? Calculate the amount of money you will have to borrow to purchase the car. CA2, CA3, OC1, OC2, EK1, EK3

3 What rate of interest will you have to pay on borrowed money? 7 The banks are in the business of lending you the money you need. You need to find the lowest rate of interest you can. The rate will vary depending on the amount you need to borrow and whether your loan is secured or not. Find the best interest rate available by looking at the sites of financial institutions. CA1, CA2, OC1, OC2, EK1, EK3 How much will your loan cost you each month? 8 The amount of your monthly payment will vary with the length of time you choose for paying back the loan. Look for a site that will help you calculate your auto loan payment. Sites that are not directly related to car manufacturers are usually easier to use. You should be able to determine your monthly payments based on the information you have collected so far. Make any changes to the length of repayment or, if necessary, to your choice of vehicle in order to arrive at a monthly payment that you believe you can afford. You may need to return to this calculation later once you have determined the cost of insurance, gas and maintenance. CA1, CA2, OC1, EK1, EK3 How much will insurance cost you? 9 Like financial institutions, insurance companies compete for the business of insuring your car. Insurance companies will quote a price once they know the details of your situation. A lot of information goes into an insurance quote, including the estimated kilometres you expect to drive each year. Ask drivers you know what a reasonable number of kilometres would be for a person in your situation. Establish an insurance cost by looking for sites that quote your price online. Determine the monthly insurance cost. CA1, CA2, OC1, EK1, EK3 What is the fuel consumption of your car? 10 Find the fuel consumption rating for the vehicle you have chosen, and calculate an average of the two figures (city and highway). The federal government maintains a table of average fuel consumption for all vehicles (look for fuel consumption ratings ). Car ads often include fuel consumption figures and some car owners will know the numbers for the car they drive. You can also look at the carbon footprint of the vehicle that you are considering at this point. Using the same number of kilometres you estimated in Task 9, calculate the amount of fuel in litres you can expect to use annually. CA1, CA2, OC1, OC2, EK1, EK3 How much will you spend on gas? What is the current price of gas per litre? Using this figure, calculate the estimated annual cost of fuel for the vehicle you have chosen. Then calculate how much this represents per month. How much will you spend to maintain your vehicle? Finally, there is the cost of maintaining your vehicle and its tires. The CAA (Canadian Automobile Association) has a brochure entitled Driving Costs that provides an average cost per kilometre for a passenger car for these two items. Find the monthly cost of maintaining your vehicle.

4 Can you afford the car you have chosen? 13 Now collect all the information you have found to calculate a final monthly cost of buying, owning and operating your vehicle. How about it? Can you afford this used car? Notes to teacher Question 1 AutoTrader site: N1 Natural Resources Canada site: There is also a useful checklist ( Checklist for My Ideal Car ) for the student thinking about a car purchase at the following site: Question 2 Finding book value: Very simple site to use. The student chooses the make, model, year, options, kilometres and gets a book value. The site explains the difference between the wholesale value (what a dealer would pay for the car) and the retail value (what the customer should expect to pay the dealer). N2 Worksheet: It is recommended that the student open an Excel worksheet at this point (assuming your students have access to Excel). Some preliminary coaching in Excel may be necessary in how to do basic calculations using the software. The student should also mark his/her answers by hand in the student booklet. The teacher will be able to verify the calculations either in the student s booklet or in the student s Excel file. An Excel template is provided as an annex to this document for reference purposes (Annex 1). Ideally, the student will develop their own Excel worksheet. Question 3 for GST and QST rates If the student makes the choice of purchasing from a dealer, he/she will have to calculate GST and then QST. The QST is calculated on the total of the sale price + the GST ( tax on tax ). This can be the subject of a demonstration. N3 The example shown on the Revenu-Québec web site also involves order of operations, which may require explanation. The Quebec Consumer Protection Agency (Office de la protection du consommateur) has good pages on general considerations involved in buying a used car either from an individual or from a dealership. Buying from an individual: TransactionsParticuliers/Introduction_en.aspx Buying from a dealer: Commercant/Introduction_en.aspx

5 N6 N5 N4 Question 4 Question 5 Question 7 The idea of collateral or security for a loan is an important concept. At the time of writing, Desjardins was offering a rate of 7.89% for a secured auto loan and 13.75% for an unsecured one. Similarly, the rights and responsibilities involved in signing a contract are significant. The Quebec Consumer Protection agency describes the basics at: DifferentsTypesContrats_En.aspx Financial institutions: Caisse Populaire Desjardins: National Bank: Royal Bank: T-D Bank: Question 8 is a handy site. N7 Desjardins also has a good car payment simulation tool at: The relation between length of repayment and amount of monthly payment is a crucial one. The decisions the student makes at this point concern what is truly affordable, how to handle a budget when car payments are involved, the value of money, the question of working to earn money to pay for a car vs. studying / earning less / making do without a car. Lots to consider. Question 9 N8 is a handy site for this purpose. There are a considerable number of fields to fill out to get a quote, which is ed back to the applicant. When tested, the quote came back within the hour.

6 Question 10 N11 N10 N9 The Natural Resources Canada web site: gives the numbers. It also projects average annual fuel costs for each model, as the student is doing his/her calculations. This is a stage where the idea of how good driving habits and good car maintenance can affect fuel consumption can be considered. Question 11 Question 12 CAA site: Notes & comments