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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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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

  • Savings 3,520

  • Car payment, insurance, operation6,800

  • $ 0


Find maximum price

  • Budgeted amount$6,800

  • Insurance 400

  • Operating costs 1,000

  • Car payments$5,400


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?


Choices?

2008 Honda Element -- $18,750

2008 Honda Civic -- $15,210


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


Other Choices

Chevrolet Malibu Hybrid -- $23,640

2008 Mazda Miata -- $25,030


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


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!


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


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.


Making your purchase (continued)

  • Evaluate financing alternatives

    • Avoid until after price of car is set

    • Find the best interest rate

    • Consider a lease


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


Questions?


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