Managing your Personal Finances Managing your Personal Finances Unit 3 : Getting Your First Car Cash vs. Loan vs. Lease 1

DO NOW: What are some different ways that individuals pay for automobiles? What can happen if you borrow money and you are not able to make the monthly payment on a car? 2

Standards 3.1 Students will be able to analyze and apply multiple sources of financial information when making financial decisions about automobile purchases. 3.2 Students will understand the costs and benefits associated with attaining a car for cash, loan, and lease. 3.3 Students will understand the components and costs of car insurance and explain the importance of protection against financial loss. 3

Lesson Goals I can compare the advantages and disadvantages of owning a car using cash, loan or lease. I can use a loan calculator to determine the cost of a car loan. I can compute the costs of buying a car with cash, loan and lease to help me make educated financial decisions about automobile purchases. 4

DO NOW: What do already know the advantages and disadvantages of : Paying Cash for a car Taking out a Loan to buy a car Taking out a Lease on a new vehicle 5

Do Now(Answer) 6

Cash Pros Pride of ownership: you own the car (the car is in your name…not the bank’s or the dealership’s name) Car buying is more economical in the long run No penalty for driving excess mileage 7

Cash Pros Increased flexibility-you can easily sell the car whenever you want alter it as you wish Easier to negotiate a better price on the car when you have the $$s No interest to pay No car loan payments (you can begin to save toward next car or for a rainy day) 8

Cash Cons You’re responsible for maintenance costs (once the warranty expires) Trade-in or selling hassles when you try to sell your car 9

Cash Cons More of your ready cash is tied up in the car (which depreciates) rather than an investment that appreciates. Leaves you with limited funds for a rainy day or to purchase other needs and wants. 10

Cash Pros and Cons What do you see as the biggest Pro and Con of paying cash for your vehicle? 11

Write your Questions 12

Loan/Finance Pros Enables you to own a new car without the total “upfront” cost; all you usually need is a $4,000-$6,000 down payment Allows you to own a car after paying a monthly rate for a set period of time. 13

Loan/Finance Pros You can get a loan through an automaker, credit union (more on credit unions later), or a bank. “Only” need $4,000 - $6,000 down payment You can take advantage of good car interest rates (even zero-percent interest rates) 14

Loan/Finance Cons Most loans require interest to be paid back as part of monthly payment (if your credit is not good, it might be tough to get a loan with a favorable terms) Car payments for 48 – 72 months 15

Loan/Finance Cons Financing often requires a down payment; usually between 10-15% of the total loan Harder to sell car (need to pay off loan first) More complicated negotiation Loan holder might require more insurance 16

Loan/Finance What do you see as the biggest pro and con of financing to purchase a new vehicle? 17

Lease Pros You can drive a new car now without having to pay the whole cost at once Lower monthly payment Usually need a smaller down payment 18

Lease Pros Lower repair costs (warranties usually cover most repairs) No trade-in hassles at the end of the lease You pay sales tax on only a portion of the car you finance 19

Lease Cons You don’t own the car at the end of the lease Your mileage is limited to a set amount (usually 12,000-15,000 per year) 20

Lease Cons Lease contracts are confusing Have a car payment for term of lease only Can’t sell car at end of the lease (it is not your car) More complicated negotiation 21

Lease Cons Lease holder might require more insurance Might incur penalties for damage or other wear and tear to the car Costly to terminate a lease earlier than lease period 22

Lease What is the main difference versus a loan when leasing a vehicle? 23

Lease? Let’s look at the numbers… 24 Loan? Cash?

Access Bankrate’s Loan Calculator at to confirm our loan amounts: Car #1: Loan for Ford Escape: $19,955 for 48 months at 6%. Monthly payment $____________________ Car #2 Loan for Jeep Wrangler: $27,420 for 48 months at 6%. Monthly payment$___________________ 25 Using a Loan Calculator

Extra Credit: Use the following formula to manually calculate loans for Car 1 and Car 2. (Remember to show your work. 26

Lesson Goals I can compare the advantages and disadvantages of owning a car using cash, loan or lease. I can use a loan calculator to determine the cost of a car loan. I can compute the costs of buying a car with cash, loan and lease to help me make educated financial decisions about automobile purchases. 27

Ticket Out the Door 28 What did you learn from this lesson? What surprised you?