1. Personal Finance: Loans
TSWBAT:
Explain the car-buying process and all financial components
Discuss steps & considerations in obtaining a home mortgage

2. Car: Usually Your First Big Purchase
Buying a car is an investment
Cars depreciate in value
It is very easy to over pay for a vehicle!!
If you are buying a used car, KBB is your best friend! (Kbb.com)
SC Standard 4: Personal Finance

3. Kelly Blue Book (kbb.com)
Compare new & used cars
Estimate payments
Reviews
“10 steps” to buying new or used cars
EXAMPLE: Honda Civic DX
SC Standard 4: Personal Finance

4. Secondary Considerations
Color
Options
Coolness
SC Standard 4: Personal Finance

5. Buying a Car: Things to consider first
Down payment/amount to spend
Length of loan
Reliability
Insurance costs
Annual Costs (oil changes, brakes, tires)
Weekly costs (gas, washing)
SC Standard 4: Personal Finance

6. Selection: Do your homework!
If you have a car in mind, research it before going to a dealership!
Think about:
Crash testing (safercar.gov)
Gas mileage (fueleconomy.gov)
Repair costs
Warranty costs
Depreciation (kbb.com)
SC Standard 4: Personal Finance

7. SC Standard 4: Personal Finance
Down Payment
The more $ you put down, the lower your monthly payment
Your DP decreases the amount of money you pay interest on
Saving for a DP is very important when buying an expensive car
SC Standard 4: Personal Finance

8. SC Standard 4: Personal Finance
Length of Loan
New Cars: generally months
The longer you have a loan, the more interest you pay
Be careful buying a car over 66 months of payment time!!
Don’t fall for the long loan trick!
SC Standard 4: Personal Finance

9. How do we determine Payments?
SC Standard 4: Personal Finance

10. SC Standard 4: Personal Finance
3 Manipulations
Length of loan- the longer it is the more interest you pay and the lower your monthly payment
Interest rate- the higher it is the more you pay
Trade in value of your car- know the value of your car BEFORE entering the dealership!
SC Standard 4: Personal Finance

11. Insurance: Do your Homework!
Before purchasing a car, find out how much it will cost to insure it annually
Monthly payments will cost you more!!!
Call at least 3 Companies- they will all charge different amounts!
SC Standard 4: Personal Finance

12. Buying a Home: A HUGE Investment
The biggest purchase of your life will probably be a home
SC Standard 4: Personal Finance

13. Advantages & Disadvantages
Freedom of use
Pride in ownership
Privacy
Investment that appreciates
Equity
Good credit rating
Can use property as collateral
Less mobility
Large outlay of money in down payment (20%)
Maintenance costs
Mortgage payments are usually higher than rent
SC Standard 4: Personal Finance

14. Costs (in addition to purchase price)
Down payment
Closing costs (sometimes seller pays)
Points: fees paid to a lender computed as a percentage of the loan
Lenders charge points when they feel the interest rate is too low to cover their expenses
SC Standard 4: Personal Finance

15. Factors for Getting a Loan
Credit Score/Credit Report
Down payment
Should be at least 20%
Employment
Steady employment for at least 2 years
Usually this is enough for
“pre-approval”
SC Standard 4: Personal Finance

16. SC Standard 4: Personal Finance
3 Rules of Lending
Purchase price should be no more than double your annual income
Mortgage payment can only be 1/3 of your monthly take home salary
Loan amount has to be 80% or less of appraised value
*Rest has to be down payment
SC Standard 4: Personal Finance

17. 2 Major Types of Mortgages
Fixed Rate: interest rate and monthly payments remain the same over the life of the mortgage (15-30 years)
Adjustable Rate: (ARM) With most ARMs, the interest rate and monthly payment change every year, every three years, or every five years. However, some ARMs have more frequent rate and payment changes.
SC Standard 4: Personal Finance

18. SC Standard 4: Personal Finance
Payment Shock w/ ARMs
People sign for ARMs because of the low initial payment for first adjustment period.
ARM Interest       
Rate Monthly Payment
1st year 8%
$476.95  
2nd 12%
$665.43
SC Standard 4: Personal Finance

19. SC Standard 4: Personal Finance
ARM Caps
Many ARMs have caps on the amount the interest rate can increase
Can be per year or over life of the loan (ie: could increase 1% every year or have a cap of 5% over 30yrs)
The ARM can also have a payment cap of a specific amount
BOTTOM Line: ARMs are scary!
SC Standard 4: Personal Finance

20. SC Standard 4: Personal Finance
Mortgage Checklist
The mortgage process involves lots of information gathering
You must provide the lender with tons of personal information
SC Standard 4: Personal Finance