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Chapter 5 Making Automobile and Housing Decisions: Auto Buying Replace the junker ... First major purchase Needs versus Wants Fit car into your annual budget Salary$35,220 Taxes 10,000 Rent 6,500 Utilities 3,600 Food 3,000 Other 1,800

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Making Automobile and Housing Decisions: Auto Buying

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Making automobile and housing decisions auto buying l.jpg

Chapter 5

Making Automobile and Housing Decisions: Auto Buying


Replace the junker l.jpg

Replace the junker ...


First major purchase l.jpg

First major purchase


Needs versus wants l.jpg

Needs versus Wants


Fit car into your annual budget l.jpg

Fit car into your annual budget

  • Salary$35,220

  • Taxes 10,000

  • Rent 6,500

  • Utilities 3,600

  • Food 3,000

  • Other 1,800

  • Savings 3,520

  • Car payment, insurance, operation6,800

  • $ 0


Find maximum price l.jpg

Find maximum price

  • Budgeted amount$6,800

  • Insurance 400

  • Operating costs 1,000

  • Car payments$5,400


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Payment: $5,400/12 = $450

4 years x 12 mo. = 48

6%/12 mo. = .5%

Calculator

PMT: -450

n: 48

i: .5

Compute PV

$19,161

What Can You Afford?


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Choices?

2008 Honda Element -- $18,750

2008 Honda Civic -- $15,210


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What Can You Afford?

  • Payment: $5,400/12 = $450

  • 6 years x 12 mo. = 72

  • 6%/12 mo. = .5%

  • Calculator

    • PMT: -450

    • n: 72

    • i: .5

    • Compute PV

    • $27,152


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Other Choices

Chevrolet Malibu Hybrid -- $23,640

2008 Mazda Miata -- $25,030


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Monthly Payment Computation

$22,500

5 years x 12 mo. = 60

8%/12 mo. = .6667%

  • 5 years (n=60): $456.22

  • 4 years (n=48): $549.29

  • 3 years (n=36): $705.07

Chevrolet Impala


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www.consumerreports.org

www.autosite.com

www.caranddriver.com

www.edmund.com

www.autoconnect.com

www.autoweb.com

carpoint.msn.com

www.kbb.com

www.nhtsa.dot.gov

www.intellichoice.com

Internet Sources of Car Information

Don’t forget about taxes, insurance, and operation!


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Making your purchase

  • Get the best price

    • Negotiate with 3 or more dealers

      • know the dealer’s cost of the vehicle

      • understand the various dealer markups

      • be aware of any rebate that may apply

    • Use buyer services, e.g., www.samsclub.com, www.costco.com


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Making your purchase (continued)

  • Use Internet or fax dealers yourself

    • Do test drive at local dealership

    • Decide on features and color you want

    • On internet shop auto companies’ sites for inventory at different locations; you’ll need to insert zip codes of cities of interest

    • Prices differ by location because dealers use different incentives (examples from 2002)

      • Ford Explorer costs vary $4,300 nationwide from $32,281 in Tennessee to $27,939 in Oklahoma according to J.D. Power & Assoc.

      • Lexus RX 300 costs $37,604 in N. California but $35,333 in S. California.


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Making your purchase (continued)

  • Evaluate financing alternatives

    • Avoid until after price of car is set

    • Find the best interest rate

    • Consider a lease


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Tip: Smarter Tires?*

  • Tire pressure is one of the most important factors in auto safety and efficient operation

  • Improves handling, fuel economy, tire life

  • Feds considering requiring micro-chip to monitor tire pressure

  • Costs $70 per car

*WSJ 7/14/04


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Questions?


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