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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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