Personal Finance

Chapter 23

Identify Your Needs and Wants Think about what you NEED from your

car.

How much will I drive? Do you plan to haul a lot of people or gear? Will I take the car off-road?

What features would you WANT if you could afford them?

Identify Your Needs and Wants After you have made a list of your wants

and needs, prioritize them.

You may have to trade off some of the “wants” for the lower price.

Determine What You Can Afford Before you start shopping for a car,

determine how much you can afford to spend.

One general guideline:You should not have monthly payments that

take up more than 20% of the money you have left over after paying your regular expenses.

Identify and Research Your Choices

Select several types of cars that would meet your needs and research the features of each possibility using places like Consumer Reports.

Compare the features of the models you are considering against your list of wants and needs, and note the pros and cons.

Decide Whether to Buy New or Used

A new car is much more expensive than the same model bought used.

A new car loses much of its value as soon as it is driven off the lot.

Buying a well-maintained used car can save you money.

But, used cars are likely to need more repairs.

Decide How You Will Pay For It Preapproval is the process of getting a

new or used car loan pre-arranged through your bank or credit union.Typically, the preapproval will expire within

30 or 60 days, and you will then have to reapply.

Check Insurance Rates

Check out the insurance rates on your vehicle choices.

If a car is rated as a “sports car” the cost of insurance may be much higher than vehicles rated highly for safety.

Search for Available Vehicles Search newspapers, online, and print

publications for available vehicles in your area.

Many dealer websites allow you to search through their inventory and get prices before going to the dealership.

Test Drive Each Vehicle

Compare the ride, handling, brakes, features, and cost.

Take your time– don’t be in a hurry when shopping for this purchase!

Check the dealer’s reputation as well.

Check the History of a Used Vehicle

The Vehicle Identification Number (VIN) is a an alphanumeric number that identifies each vehicle manufactured in the US.

It is available on vehicle documents and on the dashboard of the car, visible through the front windshield.

You can enter the VIN at www.carfax.com where you can purchase a detailed history of the car.

This will cost you money, but you will find out if the vehicle has been in an accident, how many times it has been sold, and the mileage readings when it was sold.

Get the Vehicle Checked Mechanically

After the used vehicle as passed the VIN check list and you want to buy it, get it checked out by a mechanic.

Ask for a record showing that the car has passed the vehicle emission test, which is a test to verify that a vehicle meets the minimum clean-air standards.

Determine a Fair Price Decide what price you think is fair before

you make an offer for a car.

Kelley Blue Book publishes a pricing guide for all models and all years.

By looking up the model and year of the car you are considering, you can find an estimated fair price for it.

Determine a Fair Price

The sticker price on a car, or manufacturer’s suggested retail price (MSRP) is the price shown on the tag in the car’s window.

A fair price for a new car usually lies somewhere between the sticker price and the price the dealer paid for it (the invoice price).

According to the Automobile Association of America (AAA), the dealer’s invoice is approximately 90% of sticker for compact and subcompact vehicles, 84-87% of sticker for luxury vehicles.

A fair price is likely to be 3-6% over the invoice price.

Negotiate the Price Statements like, “This is the only car I

want,” or “This is just what I am looking for,” weakens your bargaining position.

Don’t reveal emotions. Make your initial offer lower than your top

price, and then be prepared to negotiate.A car-buying service allows you to choose the

vehicle features you want, and the service will located it, negotiate the price, and arrange for the delivery (for a fee).

Negotiate the price of the new car separately from the price for your trade-in.

After you have settled on a price for your new car, then ask the dealer how much they will give you for your old car.

If the dealer will not offer an amount close to the value in Kelley Blue Book, you may want to consider selling it yourself.

Dealer Add-Ons

After you have agreed on a price, the dealer may try to increase the purchase price by the use of dealer add-ons– high-priced, high-profit dealer services that add little or no value. For example:Dealer preparationSpecial wax or polishRust-proofing

Financing Your Car

Financial InstitutionsBanks, credit unions and even insurance

companies offer car loans for 36, 48, 60, or 72 months.

Longer terms mean lower monthly payments, but higher total interest paid because you are using the money for a longer period of time.

Financing Your Car Car Dealers

Most new car dealers offer financingOn particular models during particular times of

the year they may offer better terms than others.GMAC (General Motors Acceptance

Corporation) is an example of a finance company that makes loans on cars through dealerships.

Most other manufacturers offer similar programs.

You would make your payments to the finance company, not to the dealer.

Leasing a Car A car lease is similar to an apartment lease. It

is a written agreement that allows you to use the property (the car) for a specified period of time and monthly payment.

You do not own the car, you are simply renting its use.

At the end of the lease period, you usually have the option to buy the car for the price specified in the lease agreement, which is based on the expected value of the car at the end of the lease term.

Leasing a Car Because interest on car loans is not tax

deductible, leasing is a popular option. People can afford to lease a more expensive

car than they would be able to buy on credit. An advantage is that there is no down

payment, no trade-in to worry about, and a new car every few years, but in the end, you actually own nothing, and you may have to pay penalties for excess mileage or wear and tear.

Consumer Protection for Car Buyers Warranty- a written statement about a

product’s qualities or performance that the seller assures the buyer are true.

A new car warranty provides a buyer with some assurance of quality.

Car warranties vary in the time and mileage of the protection they offer and in the parts they cover.

Lemon Laws

Lemon laws exist in many states and protect consumers from the consequences of buying a defective car.

A lemon is a car with substantial defects that the manufacturer has been unable to fix after repeated attempts.

You have a lemon if, in the first year of ownership or 12,000 miles:a) you have taken the car to the dealer for

four or more unsuccessful attempts to repair the same substantial defect or

b) your car has been out of service for a total of at least 30 days

Lemon laws allow you to get a new car or your money back.

You need to have good documentation and be prepared for a long process. A procedure called arbitration and a possible lawsuit may be necessary to enforce your state’s law.

FTC Used-Car Rule People who buy a used car must be concerned

about whether it has some hidden defects or potentially expensive repairs ahead.

The Federal Trade Commission “Used-Car Rule” is designed to protect used-car buyers.

The rule does not guarantee that the car has no problems, but does require used-car dealers to inform consumers ahead of purchase about who will be responsible for paying for certain repairs if they occur after the sale.

The rule requires dealers to place a sticker, called the “Buyer’s Guide” on all used cars they offer.

If the “As Is” box is checked, the buyer must pay all repair costs.

If the “Warranty” box is checked, the dealer will pay to repair the items listed as under warranty for the specified period of time.

Cars bought from a private seller do not have a warranty.

Maintaining Your Vehicle

Cost of Operating a Car

FuelThe cost of gasoline depends on the fuel

efficiency of your car’s engine and number of miles that you drive.

Larger vehicles and more powerful engines require more fuel.

In an effort to improve gas mileage and reduce air pollution from exhaust fumes, you may want to buy a hybrid vehicles- they use alternate energy sources, like natural gas or battery power, in addition to gasoline.

Depreciation- a decline in the value of property due to normal wear and tear.

As a car ages, the number of miles driven increases, the physical condition begins to deteriorate, and mechanical difficulties arise.

Also, styles and consumer tastes change over time.

All these factors usually cause cars to lose market value.

Not all cars depreciate– very old vehicles in excellent condition may appreciate in value if people value them as collector’s items.

Depreciation is the single greatest cost of owning a car- the cost of gasoline is second.

A car will retain more of its value over time if it is well-maintained and has fewer miles on it at the time of sale.

Registration and Title

All states charge a fee to register a car title- the legal document that establishes ownership.

A car title lists the legal owner (usually the lending institution) and the registered owner (you)

You must pay title fees and sales taxes only at the time you buy the car.

However, you must pay a tag fee each year and pay for emissions testing in some states every few years.

Maintenance and Repairs The owner’s manual will tell you what

services your car needs and how often. Typically, you change the oil every few

thousand miles, have a major engine tune-up every 20,000 to 30,000 miles, and perform other maintenance at scheduled intervals.

You should plan for unscheduled repairs, like flat tires, broken belts, and leaky hoses that can be costly.

Accessories

Things that are added to the vehicle, like snow tires, floor mats, seat covers, paint features, alarm and sound systems.

Extending the Life of Your Car Maintain Fluid Levels

Many newer cars claim to run 7,000 or more miles between oil changes, but changing the oil more frequently can add years of life to a car.

Oil lubricates the moving parts of the engine and keeps it clean.

Oil must be changed to eliminate accumulated dirt and sludge, and experts recommend you change the oil every 3,000 miles or 3 months.

Extending the Life of Your Car Perform Routine Maintenance

Don’t wait for trouble before checking fluid levels and inspecting belts, hoses, and tire pressure.

Inspect tires for wear and replace them before tread wear puts you in danger of a blowout.

These checks may cost a few hundred dollars a year, but will save you major repairs in the long run.

Extending the Life of Your Car Keep Your Car in a Garage

If possible, keep your car in a garageThis protects the vehicle from theft and

vandalismAlso protects from weather, which can

damage or destroy the vehicle’s finish and even affect its mechanical condition.

Low temperatures make it harder for the engine to start, and the starter has to work harder, and the charging system is stressed.

Extending the Life of Your Car Preserve the Exterior

When water sits on the surface of metal, it can cause rust.

Cleaning off road grime occasionally will protect the shiny finish.

Apply protective wax to guard your paint from the damaging rays of the sun and from snow-melting chemicals spread on streets in cold climates.

If you live near a coast, wax is essential for protecting the vehicle from the salty air.

Once paint has begun to oxidize (permanently lose its color and shine because of chemical reaction with the air) it is very difficult to restore the original gloss.

In most cases a vehicle with oxidized paint must be repainted to restore its shine.

A polishing compound is a substance that can smooth out surface scratches, scuffs, and stains

They often contain abrasives, which are coarse materials that scour or rub away a surface.

Used gently, an abrasive can remove the top layer of paint and will expose shiny paint underneath.

Rubbed too vigorously, an abrasive will strip the paint down to the primer.

You also want to repair dents and paint chips before rust ahs a chance to take hold.

You should touch up dings or nicks with vehicle paint that matches your color.

Extending the Life of Your Car Preserve the Interior

The condition of the inside of your vehicle is also very important for good resale value.

The upholstery is the seat-covering material.Generally, cloth upholstery is more durable

than vinyl.Although spills and dirt are more difficult to

clean off of cloth, vinyl can crack, tear, or get punctured.

Leather holds up best, but is most expensive.

Floor mats will protect the carpeting You can cover the interior of your trunk

with an old blanket Vacuum frequently Avoid parking car in the sun to avoid

fading

Follow Wise Driving Habits New vehicles have a “break-in” period,

and you would need to drive differently during this period than later in your vehicle’s life.

When the Vehicle is New: Don’t drive for long stretches at a constant

speed. Vary speed as driving conditions permit.

During the first thousand miles, drive progressively faster, accelerating gradually.

Avoid fast starts, sudden stops, sharp turns, and rapid gear changes to help your brakes get broken in.

Drive at moderate speeds and around town, avoiding long trips so your tires can get adjusted .

For All Vehicles: Don’t race a cold engine. Give it 10 to 15

seconds to warm up to allow the oil to start circulating.

Keep coolants in the radiator during hot weather and anifreezes in it during very cold weather.

When driving a vehicle with a manual transmission, shift deliberately, pausing as you move through the neutral position.

Don’t shift into a forward gear when your vehicle is rolling backward, or vice versa.

When stopped in traffic, hold the vehicle in place with the brakes rather than engaging the clutch, to avoid excessive wear on the clutch.

Don’t turn the steering wheel when the vehicle is motionless. This strains the front-end components. Turn the wheel only when the vehicle is moving.

Keep the windshield and back window free of ice and use a scraper. Running wiper blades over a dry surface can scratch the surface.

Glance at gauges and warning lights as you drive. When your vehicle signals you to stop or to get something checked, do it right away.

Always wear your seatbelt.