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Name__________________________________ Date__________
Managing your Personal Finances Block_________
UNIT 3 – FIRST CAR
3.4: Cash – Loan – Lease Notes
Standards:
3.1 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.
Lesson Goals:
1. I can compare the advantages and disadvantages of owning a car using cash, loan or lease.
2. I can compute the costs of buying a car with cash, loan and lease to help me make educated financial decisions about automobile purchases.
3. I can use a loan calculator (or formula) to determine the cost of a car loan.
BUYING A CAR FOR CASH, WITH A LOAN (FINANCE) OR WITH A LEASE
Cash - Pros
❖ Pride of ownership: you ____________________ the car (the car is in your name…not the bank’s or the dealership’s name)
❖ Car buying is more economical in the __________________ run (unless you buy and trade-in regularly)
❖ No ____________________ for driving excess mileage
❖ Increased flexibility-you can easily __________________ the car whenever you want alter it as you wish
❖ Easier to _________________________ a better price on the car when you have the $$s
❖ No _______________________ to pay
❖ No car loan _____________________ (you can begin to save toward next car or for a rainy day)
Cash - Cons
❖ You’re responsible for maintenance _______________ (once the warranty expires)
❖ Trade-in or selling ________________________ when you try to sell your car
❖ More of your ready cash is ________________ _______________________ in the car (which depreciates) rather than an investment that appreciates.
❖ Leaves you with ________________________ funds for a rainy day or to purchase other needs and wants.
What do you see as the biggest pro and con of using Cash to purchase a new vehicle?
Loan/Finance - Pros
❖ Enables you to ___________________ a new car without the total “upfront” cost; all you usually need is a $4,000-$6,000 down payment
❖ Allows you to ________________________ a car after paying a monthly rate for a set period of time.
❖ You can get a _______________________ 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 ______________________ (even zero-percent interest rates)
Loan/Finance -Cons
❖ Most loans require _____________________________ 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 __________________ terms)
❖ Car payments for 48 – 72 months
❖ Financing often requires a _______________________ payment; usually between 10-15% of the total loan
❖ Harder to _____________________ car (need to pay off loan first)
❖ More complicated _______________________________
❖ Loan holder might require ____________ insurance
What do you see as the biggest pro and con of financing to purchase a new vehicle?
Lease - Pros
❖ You can drive a new car ___________________ without having to pay the whole cost at once
❖ _______________________ monthly payment
❖ Usually need a __________________________ down payment
❖ Lower _______________________ costs (warranties usually cover most repairs)
❖ No trade-in hassles at the __________________ of the lease
❖ You pay sales ______________ on only a portion of the car you finance
Lease -Cons
❖ You don’t ________________ the car at the end of the lease
❖ Your mileage is limited to a ____________ amount (usually 12,000-15,000 per year)
❖ Lease contracts are _______________
❖ Have a car payment for term of lease
❖ Can’t ____________ car at end of the _____________ (it is not your car)
❖ More complicated negotiation
❖ Lease holder might require ___________________________ insurance
❖ Might incur ______________ for damage or other wear and tear to the car
❖ Costly to terminate a lease ___________________ than lease period
What do you see as the biggest pro and con of leasing a new vehicle?
Part 2. Let’s look at the numbers…
Car #1: 2014 Ford Escape SUV ($23,000 estimated dealer price)
|Using Cash to Buy the Car |
|Price of Car |$23,000 | |
|7% Sales Tax (of Price of Car) |1,610 | |
|Title/Registration Fee |345 | |
|Total Car Price | |$24,999 |
|Less Value of Car after Depreciation (4 years at 70%) | |7,500 |
|Overall Cost of Car Using Cash | |$17,499 |
| Financing the Car with a Loan |
|Price of Car |$23,000 | |
|7% Sales Tax (of Price of Car) |1,610 | |
|Title/Registration Fee |345 | |
|Total Car Price | |$24,999 |
|Down Payment (required by Bank) | |5,000 |
|Amount of Financed | |19,955 |
| | | |
|Cost of Loan (Amount Financed plus Interest: 48 months x 6%=$469 per | |22,512 |
|month) | | |
|Plus Down Payment | |5,000 |
|Total Cost of Car (Cost of Loan plus Down Payment) | |27,512 |
|Less Value of Car after Depreciation (4 years at 70%) | |7,500 |
|Overall Cost of Financing a Car | |$20,012 |
|Driving the Car with a Lease |
|Price of Car |$23,000 | |
|Title/Registration Fee |345 | |
|Total Car Price | |$23,345 |
| | | |
|Monthly Lease Payment ($311 x 48 months) | |14,928 |
|Plus Security Deposit | |500 |
|Plus Down Payment | |2,000 |
|Overall Cost of Leasing the Car * | |17,428 |
*4 year cost/car must be returned
Look at the above numbers: which way of purchasing the Ford Escape is best? Explain your reasoning.
More look at the number (on your own)
Car #2: Jeep Wrangler ($29,880 estimated dealer price)
|Using Cash to Buy the Car |
|Price of Car | |$29,880 |
|7% Sales Tax (of Price of Car) | | |
|Title/Registration Fee |448 | |
|Total Car Price | | |
|Less Value of Car after Depreciation (4 years at 70%) | | |
|Overall Cost of Car Using Cash | | |
| Financing the Car with a Loan |
|Price of Car | |$29,880 |
|7% Sales Tax (of Price of Car) | | |
|Title/Registration Fee | | |
|Total Car Price |448 | |
|Down Payment (required by Bank) | |5,000 |
|Amount of Financed | | |
| | | |
|Cost of Loan (Amount Financed plus Interest: 48 months x 6%=$644 | | |
|per month) | | |
|Plus Down Payment (required by Bank) | |5,000 |
|Total Cost of Car (Cost of Loan plus Down Payment) | | |
|Less Value of Car after Depreciation (4 years at 70%) | | |
|Overall Cost of Financing a Car | | |
|Driving the Car with a Lease |
|Price of Car | |29,880 |
|Title/Registration Fee |448 | |
|Total Car Price | | |
| | | |
|Monthly Lease Payment ($669 x 48 months) | | |
|Plus Security Deposit (Required by Lease Company |500 |500 |
|Plus Down Payment (Required by Lease Company) | |2,000 |
|Overall Cost of Leasing the Car * | | |
*4 year cost/car must be returned
Look at the above numbers: which way of purchasing the Ford Escape is best? Explain your reasoning.
Part 3. Use a loan calculator
Access Bankrate’s Loan Calculator at 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 #2
Loan for Jeep Wrangler: $27,420 for 48 months at 6%.
Monthly payment$___________________
Extra Credit:
Use the following formula to calculate the above loans.
[pic]
Car #1:
Loan for Ford Escape: $19,955 for 48 months at 6%. Monthly payment$____________________
Show your work.
Car #2
Loan for Jeep Wrangler: $27,420 for 48 months at 6%. Monthly payment$___________________
Show your work.
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