1. Vehicle and Other Major Purchases
Chapter 8
Vehicle
and
Other Major
Purchases

2. Learning Objectives
Explain the three steps in the planned buying process that occur prior to interacting with sellers.
Describe the five aspects of major purchases that require comparison shopping.
Negotiate effectively when making major purchases.
Evaluate your purchase decisions.

3. Do Your Homework Planned Buying An everyday occurrence? The Steps in

4. Do Your Homework! Need vs. Want We have a lot of WANTS!
PRIORITIZE: Cost vs. Benefit
Priority Worksheet: pg 225
Impulse buying vs. comparison shopping

5. What do you know about the product?
For large purchases, Information = Power
Smart shoppers do their homework!
Preshopping Research: Gathering information before interacting with sellers
Information sources?

6. What term is best for me? What is a fair price?
Can you Negotiate?
Manufacturer’s Suggested Retail Price (or MSRP) vs. Invoice Price
Where can I find REAL price information?
Is a rebate available?
Investigate online to find out
What is my trade-in worth?
Do your homework to find out before
How are your negotiation skills?
What term is best for me?
Trend: longer-term financing--what does this do?

7. Debt payments-to-disposable income:
Most importantly, HOW MUCH CAN I AFFORD?
Recall from chapter 6!
Debt payments-to-disposable income
AKA: Debt-to-Income ratio = monthly net income
monthly installment debt
(non-housing)
YOU should set your own debt limit
Debt payments-to-disposable income:
Should NOT exceed 16%

8. A Car Buying Illustration, pg 227
Fitting a new payment into a tight budget… IS IT WORTH IT?
A Car Buying Illustration, pg 227

9. Use Comparison Shopping
Interacting with sellers to find the best buy
“Best Buy” = acceptable quality at a fair price
Does the “best buy” = lowest price?
Time + Effort => Save $ => Satisfaction
Compare prices/quality/reputation among various sellers (rule of three)
Beware! Beware! Are you upside down? What is Negative Equity?
Compare financing options - loan preapproval
Compare rebate incentives, low APR

10. Leasing as an alternative to buying
What is leasing?
New form of leasing: “smart buys”
Increasingly popular with new-car shoppers… WHY?
Advantages:
More car for the money
Lower monthly payments
Disadvantages:
At the end of lease you don’t own the car
May be more expensive overall to lease
Mileage allowance

11. Leasing Terminology Gross Capitalized Cost Cap Cost Reduction
Negotiated price of vehicle (inc taxes/fees)
Cap Cost
Cap Cost Reduction
Down payment, trade-in, or rebate that will reduce the amount being financed
Adjusted Cap Cost
Cap cost – cap cost reductions: the actual amount being financed
Residual Value
The projected value of the vehicle at the end of the lease
Money Factor
Similar to APR to finance vehicle (multiply by 2400 to compare)
Cap Cost – Residual Value = Depreciated Value of vehicle
DEPRECIATED VALUE = $7,000
RESIDUAL
VALUE = $13,000

12. Remember: Knowledge = Power
Open-end lease vs. Closed-end leases
Excess mileage charges
Acquisition fee
Disposition fee
Early termination fee
Be careful about GAP insurance
Full vs. Limited Warranties, pg 233
Extended warranties : almost 80% never used!!
In general, be cautious about leasing: It can be complicated.
Remember: Knowledge = Power

13. Whether Buying or Leasing… Negotiate Effectively
Remember: sellers are highly skilled; not objective
The key to successful negotiating is to be armed with knowledge and accurate information
Where to Start?
Rule: negotiate only PRICE of VEHICLE
With many other variables (trade-in, rebates, options, interest rate,) the dealer can APPEAR to be cooperative on one aspect and make up the difference elsewhere!
Dealer Holdback
Negotiate interest rate
Negotiate Trade-in: beware of high-balling
Good Cop-Bad Cop!
Finalize car deal and beware of low-balling

14. Second, negotiate your interest rate
Negotiate lowest possible APR through the dealer
Know your credit score!
Borrow elsewhere if the rate is lower
Third, negotiate your trade-in
Know the value of your vehicle: preshopping research
Obtain a firm commitment on a trade-in allowance
Sell the vehicle yourself if the allowance is too low
Beware of high-balling
Fourth, shop around: rule of 3!
Lastly, make your decision

15. The Top 3 Mistakes In Big-Ticket Purchases
Believing that the seller is an unbiased source of information for price, financial terms, and trade-in value.
Telling a seller what you can afford to pay so the seller can avoid disclosing the lowest price or telling a seller your expectations for a monthly payment.
Failing to do research on your own before you go shopping and talk to salespeople.