Lesson One: Buying a New or Used Car. Consumer Education

Transcription

1 Lesson One: Buying a New or Used Car Consumer Education

2 Budgeting for a Car Purchase Know Your Budget What are your fixed expenses? How much can you afford for a vehicle? Recommend no more than 20% of monthly take-home pay. Down Payment or Trade-In? Double-check your estimate by prequalifying for a loan at a: Bank Credit Union Consumer Education

3 Vehicle Expenses Cost of the Vehicle Sales Tax Destination fees, if applicable (shipping) Routine Maintenance Oil changes and lubrication Tire rotation Tune-ups Coolant, wiper blades, filters, etc. Insurance License & Registration Unexpected Repairs Gas Depreciation Consumer Education

4 New vs. Used How much is a new car worth 5 years from now? Most Cars: 22-25% of the original value Honda Accord or Toyota Camry: 60% of original value Source: Kelly Blue Book (kbb.com) Consumer Education

5 New Cars Advantages Zero miles or close Newest safety features Disadvantages Higher purchase price Instant depreciation Order to your specifications Possible high pressure sales Few/little repairs Impulse buying Warranties Unwanted features

6 Advantages Reduced price Avoids instant depreciation Limited warranties No need to worry Used Cars Disadvantages Unknown history More repairs potentially Opportunity for fraud Higher mileage Insurance savings

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8 A Big and Important Purchase New Vehicle is the 2 nd most expensive purchase in your life. 1 st is a home A car is a long-term commitment Average price: New vehicle: $25,206. Used vehicle: $15,568 Know the Basics VIN, Manufacturer, Make, Model, Year, and Type

9 Vehicle Identification Number VIN is a 17-character number Where is it? Left side of the dash Inside of driver s doorjamb Vehicle s title card Information specific to the vehicle

10 Manufacturer:: The company that builds the car. The manufacturer builds makes of cars. Manufacturer & Make Ford manufacturers Mercury and Lincoln cars. General Motors manufacturers Pontiac, Buick, Cadillac, Oldsmobile, Hummer, Saturn, and Chevrolet cars. Honda manufactures the Honda and Acura cars.

11 Model Specific type of make Taurus (Ford) Accord (Honda) Altima (Nissan) Corrola (Toyota) The model year Not necessarily the year it was built

12 Type Pickups Sport Utility Vehicles Sport Utility Trucks Compact Cars - Civic Mid-size Cars - Honda Full-size Cars Mini-vans Town & Country Full-size Vans Sports Cars - Corvette

13 Car Buying: 4-Step Process 1. Research 2. Check out the cars 3. Set a target price 4. Shop for financing

14 Features/Options Can you afford the added expense? Air conditioning Sunroof Convertible top Automatic/manual transmission Cruise control Leather interior Power locks Anti-lock brakes

15 Step 1: Research

16 Sources to Compare Models Step 1: Research The person who does their research always gets a good deal. Online Sources: Auto Manufacturers Pricing sites Consumer Reports Fuel Economy sites Safety sites

17 Auto Manufacturer Websites Step 1: Research Good for: Basic Information Models & Trim Levels Retail Pricing Warranties Dealership Locations Search of Certified Used Cars Main purpose of auto sites is to promote their own vehicles. Manufacturer Name Daimler Chrysler Ford Motor Company General Motors Honda Motor Company Hyundai Motor Company Isuzu Kia Motors America Mitsubishi Motors Toyota Motor Corporation Volkswagen Website

18 Pricing Websites Step 1: Research Name AutoTrader Website Good for: New-Car Retail Prices Used-Car Retail Prices Dealer Invoices Incentives Other Pricing Variables Edmunds IntelliChoice Kelley Blue Book National Automobile Dealership Association VMR (used cars only)

19 Consumer Reports Step 1: Research Consumer Reports: Vehicle Ratings Model Reviews Reliability Ratings Fuel Economy Safety Ratings Subscribe online 1 month ($5) or 1 year ($26) Last 4 years of data Consider: Your Local Library

20 New & Used Car Buying Guides Step 1: Research

21 Step 1: Research Lists MPG for: City, Highway, and combined Compare MPG for 4 models side by side Customize an annual fuel estimate based on the cost of gas in your area, and the percentage of highway to city driving.

22 Safety and Crash Tests Step 1: Research Insurance Institute for Highway Safety Tests and rates off-set frontal crashes: Good Acceptable Marginal Poor National Highway Traffic Safety Administration Tests and rates full-frontal & side impact crashes on a 5- star scale : 5-star rating is the safest(*****)

23 Cool Cars = Costly Repairs! Average Repair Bill is $3,912 Repairs Costs have increased 60% since BMW 5 Series Adaptive headlight $2,035 Parking Sensor $372 Adaptive Cruise Sensor $2,222

24 Step 2: Check out the Cars

25 Where to Purchase a Car Step 2: Check out the Cars Dealerships Take your Time: only look at 3-4 cars a day. If you are tired at the end of the day and just want to get it over with, a salesman will be able to sell you anything.

26 Where to Purchase a Car Step 2: Check out the Cars No-Haggle dealers Saturn & CarMax Sticker price is the non-negotiable price Internet Autobytel, for example Get paid by dealership referral fees Private Parties advantages? disadvantages?

27 The Art of Negotiation Don t allow anyone to pressure you walk out if you are being mistreated Negotiate the price of the car only not monthly payments Negotiate your trade-in separately Round 1 little above invoice, but below calculated target price if counteroffer: Round 2 Higher than 1 st offer, but still below calculated target price Supply & demand will determine final outcome Read everything! Check final figures! Remember, you are signing a legal contract

28 Normal Travel Routes Listen for noises Drive variety of roads: Windy Bumpy Steep Drive for at least 10 minutes and 10 miles Test Drive Step 2: Check out the cars

29 Types of Used Cars Step 2: Check out the cars Program Factory Cars Fleet-leased (Rental) Cars that may have 10,000 miles on it but they are still under warranty. Certified Used Car Certified cars come with warranties Must past inspection

30 Check out a Used Car Step 2: Check out the cars Even if the car is a dealer-certified used car: Get a Carfax report Take the car to an independent mechanic for an unbiased, second opinion. Cost: $50 - $70 ASE certified mechanics are best. Submit the vehicle s VIN: $19.99 for single report $24.99 for unlimited, 30-day use

31 Used Cars: Things to Check on the Body Condition Prior work will reveal paint and bolts Glass Paint Rust or Damage Tires Penny test Exterior Step 2: Check out the cars

32 Used Cars: Things to Check While Under Hood Oil Leaks Water Pump Play Battery & Connections Belts, Hoses & Clamps Radiator & Coolant Carburetor Air Filter Engine Oil Power Steering, Pump Oil Safety Items Lights Horn Windshield Wiper Windshield Washer the Car is on the Floor Step 2: Check out the cars

33 Used Cars: Things to Check While Brake Fluid Leaks Exhaust System Engine & Transmission Leaks Rear Axle Leak Frame or Structure Damage Suspension Tie Rod Ends Idler Arm Shock Absorbers Springs Tires Brakes (Front) C.V. Boot the Car is on the Lift Step 2: Check out the cars

34 Step 3: Set a target price

35 Invoice Price Cost to dealer (without incentives) Base Price Cost of car without options added but includes standard equipment and fac. warr. Sticker Price (MSRP) 9-11% above invoice Includes options not included in the base price Cash Price negotiated price - includes title, license and document fees Down payment Unpaid cash balance - Changes each month Insurance Premiums Gap? etc. Principal amt. financed = Cash balance + other costs Finance charge = > length of loan > interest paid Payment Schedule = Amortization schedule

36 Making an Offer Armed with research, you can make a firm and reasonable offer to the dealer. A reasonable offer is 3% - 8% above the dealer s cost. (end of year specials!) Get the price in writing. The salesman will sell you the car at your reasonable offer with hopes that they ll make more profit with the financing and extras. Calculating a Reasonable Offer Dealer Invoice Price - Factory-to-Dealer Holdbacks - Factory-to-Dealer Incentives - Volume sales incentives = Dealer Cost Dealer Cost x = Your Reasonable Offer

37 Separate Transactions Don t combine transactions: Trade-in Financing You will get a better deal if you negotiate each one individually.

38 Lesson Two: Financing a New or Used Car

39 Know Your Credit Score Your credit score determines your interest rate High Score = Low Rate Can buy score from: Get pre-approved from your bank 800

40 Number of Years to Finance? Recommend 3½ - 4 years Average loan is 5 years Interest rate increases after 5 years because risk is greater More payments increase the cost of the loan and the amount of interest you pay. Upside down-when you owe more on the car than it is worth. Usually happens with longer loans. Car: $25,000 (0% loan) Monthly Payment: $500/mth. Annual Payment: $6,000 1 st year depreciation: 25% or $6,250 Value of car: $18,750 Loan Balance: $19,000 2 nd year depreciation: 20% or $3,750 Value of car: $15,000 Loan Balance: $13,000 3 rd year depreciation: 15% or $2,250 Value of car: $12,750 Loan Balance: $7,000 4 th year depreciation: 12% or $1,530 Value of Car: $11,220 Loan Balance: $1,000

41 Low APRs vs. Rebates Usually only have the option on new cars to receive a rebate or low APR

42 Compare Multiple Finance Quotes Get quotes from: your bank or credit union online lenders dealerships Compare the APR and the length of the loan. Think beyond the monthly payment. Remember the total cost of the car is the base amount plus interest that you pay over the life of the loan.

43 All of the Finance Extras Be prepared to hear about the extras: 1. GAP Coverage 2. Extended Warranty 3. Service Contract 4. Exterior & Interior Finish Protection 5. Undercoating or Rust proofing 6. VIN Etching 7. Dealer Prep Fees

44 GAP Coverage (Guaranteed Auto Protection) New cars quickly depreciate within the first 1-2 years of ownership. You can owe more on your car than it is worth (upside down) as soon as you drive off the lot. If your car is totaled or stolen, your collision/comprehensive insurance will only cover the market (current) value of the car. Gap insurance covers the gap between the loan value and the market value.

45 Extended Warranty Takes effect after the factory warranty expires. You don t have to buy an extended warranty on the same day you buy a new car. Don t... if vehicle has above-average reliability rating. Do... if car has belowaverage reliability rating, and you plan on keeping it well past the factory warranty period.

46 Extended Service Contract Optional protection on specific mechanical/electrical components. May duplicate warranty Doesn t cover common repairs like brakes or clutches. Contract requires routine maintenance or void Look out for exclusions that deny coverage. Usually high-profit add on

47 Exterior & Interior Finish Protection Not worth the extra $$$. Paint sealant is a vastly overpriced wax Sometimes called Polyshield Fabric protection protects cloth seats from stains & fading. Consider doing it yourself! Cost example: 6-years protection for $498

48 Undercoating or Rust Proofing Not worth the extra $$$. Undercoating protects the parts below your car. May also be sold as rust proofing. Rust is extremely rare in modern vehicles.

49 VIN Etching Not worth the extra $$$. Places the VIN number on the vehicle's window to deter theft. Do-it-yourself kits = $25

50 The Benefits of Financing You establish credit Once 18, take out at least a 2-year loan and make on-time, infull payments. Before the age of 18, you will have to finance the vehicle in another person s name co-signer

51 Leasing

52 Pros & Cons of Leasing Pros Small initial down payment Lower monthly payments Pay for depreciation + rental fee Option to Buy Provides detailed records for business purposes Maintenance service charges included in lease Cons You are renting... not buying. No ownership interest! You have to return the car Annual mileage limits Usually 12,000 15,000 Must pay 10 to 25 cents for each additional mile above the annual agreement No equity at the end of the lease

53 Lease Terms Gross capitalized cost $$ paid for car Capitalized cost reduction cash down payment Acquisition fee - $$ paid for setting up lease -- Often includes security deposit returned at end of lease agreement Residual value predicted value of car at end of lease

54 More Terms! (oh, boy!) Monthly payment $$ paid each month Mileage allowance - # of miles allowed without getting charged extra $$ per mile Typically, 12,000 miles/year is allowed Excess wear fee - $$ charged for damage to car beyond what is expected Disposition fee - $$ paid when car is returned security deposit

55 Tips for Leasing Ask for an itemization of the monthly costs Get all terms in writing Ask about standards for wear and use Ask for examples of early termination charges Understand your end-oflease options, such as: Turning in the vehicle and walking away Purchasing the car Rolling into another lease

56 Tips for Leasing Get every item of equipment listed on the lease so you aren t charged for missing equipment. Take the contract home and review it carefully away from any dealer pressure. Understand all fees. Get GAP Insurance

57 Don t Purchase a Lease: If you have cash/ability to pay for a new car Drive > 12,000 miles a year or very few miles per year Keep your car for many years If you are hard on your cars Purchase one if: can t pay for a new car and like to replace a car regularly

58 Lesson Three: Maintaining a New or Used Car

59 Routine Maintenance Oil changes Tune-ups Brake Service Replace Windshield wipers Battery Timing belt Routine maintenance to avoid costly/unexpected repairs! Failure to follow maintenance schedule could void your warranty Information in your owner s manual.

60 Unexpected Repairs When the new car bumper-to-bumper warranty expires, you must pay for: Engine problems Drivetrain damage Internal engine repairs Replace Suspension Alternator Starter Water pump

61 Find and keep a reliable mechanic Find a mechanic before you need one Do your friends and family recommend the mechanic? Is your mechanic reliable? ASE Certified? Go to one place consistently Does the repair shop have complaints filed with the Better Business Bureau or the Consumer Protection Office? Think of your car as a longterm investment

62 Get Written Estimates Describe the symptoms to the mechanic, instead of trying to diagnose the problem Get the estimate in writing parts + labor Get more than one estimate. Don t sign a blank repair order Signing an estimate is authorizing to do the work You can request that the old part be returned to you, if desired. Invoice must state if new or rebuilt parts were used in the repair job.

63 But it costs more to repair the car! Does the cost of repairs exceed the cost of a new car? Probably Not! Compare the cost of a new transmission vs. the cost of a new car: Total Cost Monthly Annual Total Cost Monthly (if financed) Annual (if financed) Repair Old Car Buy New Car $1,500 $21,000 $350 $4,200