Managing your Personal Managing your Personal FinancesFinances

Unit 3 : Getting Your First CarCash 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?

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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

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Do Now(Answer)

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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

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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)

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Cash

Cons You’re responsible for maintenance costs (once the warranty expires)

Trade-in or selling hassles when you try to sell your car

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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.

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Cash

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

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Write your Questions

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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.

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Loan/FinancePros

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)

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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

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Loan/FinanceCons

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

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Loan/Finance

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

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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

payment18

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

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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)

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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

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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

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Lease

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

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Lease?

Let’s look at the numbers…

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Loan?

Cash?

Access Bankrate’s Loan Calculator at www.bankrate.com/calculators/mortgages/loan-

calculator.aspx to confirm our loan amounts:

 

Car #1: Loan for Ford Escape: $19,955 for 48 months at 6%.

Monthly payment $____________________ 

Car #2Loan for Jeep Wrangler: $27,420 for 48 months at 6%.

Monthly payment$___________________ 

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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.

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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.

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Ticket Out the Door

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What did you learn from this lesson?

What surprised you?