Owning & Operating a Vehicle Choosing a Vehicle
Usually your first major financial decision. You need to be knowledgeable to make an informed decision. Buying a car takes time, effort and research. Some factors to consider before purchasing a vehicle include: Price Style Gas Consumption Maintenance Costs Reliability Safety Resale Value Insurance Rates Making a Decision
Cost Considerations • Remember to include the taxes! • All cars purchased at a car dealership are subject to both PST and GST. • Private sales of used vehicles are only charged PST. • Most people need a loan to buy a car • Remember that a car loan is considered bad debt! • Total monthly debt repayments should not be more than 40% of your net income.
Example • If your monthly net income is $1,200.00 what is the maximum monthly debt repayment you can afford? • What is the minimum monthly net income that is needed if you wish to take a loan with monthly payments of $600.00?
Example • A new SUV is purchased from a dealership in St. Boniface for $45,000.00. What taxes are paid? • What is the total paid?
Assignment p. 139 #1 – 9
Purchasing a New Vehicle • The cost of a vehicle is not the same everywhere. • Different dealerships will charge different amounts for the same car. • It is very important to shop around and to negotiate your price.
Costs in a Purchase • Manufacturer’s Suggested Retail Price • MSRP or Sticker price • Includes: • Standard equipment • basic equipment that comes with the car • Optional equipment • extras already installed on the vehicle • Examples • Air conditioning $1000 - $2000 • Automatic transmission $1000.00+ • Power locks and windows • May be offered separately or as a part of a package.
Costs in a Purchase • Freight • Delivery of the vehicle to the dealership • Tire tax • Excise charges on the air conditioning unit • All taxes
Finding the Money • Trade-in allowance • Amount of money the dealer will give you for your current vehicle • Subtracted from purchase price before taxes are added. • Loans • Deferred payment. • Total you pay when you finance the purchase • Finance charge. • Difference between the deferred payment and the total purchase price is the
Example • You have found a two-door convertible you would like to purchase. • Base price of the car is $25 880 • Optional equipment • Preferred equipment package group costing $1260 • Four speed manual transmission costing $995 • AM/FM stereo with CD player costing $200. • Air-conditioning excise tax of $100 • $149 documentation fee • $14 tire tax • Freight charge of $620.
Example • You receive a trade in allowance on your old vehicle of $5000, and have managed to save $6000 as a down payment. • You will need to finance the rest • Your bank has agreed to lend you the money at 8 ¼% for 3 years.
Example • Calculate: • MSRP • Purchase price • Monthly payment • Deferred payment • Finance charge
Assignment Module 5 Lesson 1
Leasing a Vehicle • Based on the idea that you pay for the amount a vehicle's value decreases during the time you're driving it. • Only what you use! • At the end of the lease you have the option of returning or buying the car.
Leasing Terminology • Lease Term • length of the lease in months • Residual Value • predicted value of vehicle at the end of the term • Residual Value Rate • the rate used to determine the residual value • Lease Interest Rate: • the interest rate charged by the leasing company • Depreciation • the drop in the value of the vehicle over the term of the lease.
Cons Pay a penalty to end a lease early Charged for extra kilometres Charged for ‘excessive’ wear and tear No ownership at the end of the lease term Pros Little or no down-payment Smaller monthly payments More $ in your pocket Always driving a new vehicle You do not have to sell or trade your used car Leasing
Lease Payments • A lease payment is made up of three parts • Depreciation payment • Interest charges • Taxes • Other fees… • A security deposit • refunded if you return the vehicle in good condition • Gap protection • Insurance • Paid in case you write off the vehicle during the time when you owe more on the vehicle than Autopac will pay.
Example - Part 1 • A minivan sells for $28,500 and leases for $479 per month plus tax for a lease term of 24 months. A down payment of $3275 is required. The guaranteed residual value of the vehicle is 65% of the sales price.
Example - Part 1 • Calculate the total monthly leasing payment • Calculate the total amount paid by the end of the lease. • Calculate the total residual value of the minivan, including tax. • Calculate the total cost of the vehicle if it is purchased outright at the end of the lease.
Example - Part 2 • You are unable to pay for the minivan outright at the end of the lease, and arrange for a three year car loan at a fixed rate of 6%.
Example - Part 2 • Calculate the monthly payment on the guaranteed residual value. • Calculate the total amount paid by the end of the loan. • Calculate the total amount paid for the minivan if you finance the residual value.
Example - Part 3 • Instead of leasing the minivan, you decide to purchase it. You are able to get a 5-year car loan at a rate of 6%. A down payment of $4,000 is required.
Example - Part 3 • Calculate the total purchase price of the minivan without financing it. • Calculate the monthly finance payment of the minivan. • Calculate the deferred finance payment of the minivan.
Options • Lease + purchase outright = • Lease + finance purchase = • Purchase outright = • Finance purchase =
Assignment Module 5 Lesson 2
Vehicle Depreciation • The value that a car loses as you drive • Different cars have depreciation rates • Generally… • 20%-30% in the first year • 10%-15% every following year • Resale value • The amount it is worth after a set time has gone by.
Example • A new car is sold for $35,000. The depreciation rate is 20% the first year, and 15% each additional year • Calculate the depreciation and the car’s resale value at the end of the first three years. • Find the total depreciation of the vehicle.
Assignment p. 168 #1 - 4
Used Vehicles • Can be purchased from dealers or privately • Dealerships are easier • Look after all the mechanical check-ups • Pay taxes for you • Generally results in a higher price • Private sales can be much less expensive • Require you to do the work.
Private Sales • Have a signed written contract • Include • All terms and conditions of the sale • Any reassurances the vendor gives you • “That warning light is always on… I had it checked out and there is no problem…” • Conduct a lien search • Tells you if there is a claim against the vehicle by someone the current owner owes money.
Private Sales • Check over the vehicle carefully • Take the car for a test drive and have it inspected by a mechanic you trust! • If the vendor doesn’t want this done, there is probably a reason! • Ask to see the “Safety Inspection” • Required in Manitoba • completed by a qualified mechanic • Vehicle cannot be registered without one
Private Sales • Check the history of the vehicle • Get the VIN number • Vehicle Identification Number • Small metal tag under driver side windshield • Call MPI to see if the vehicle has ever been in an accident • Use Carfax • Online tool that will check the cars history
Calculating the Cost • Dealership • All costs are already built into the price • Add on both PST and GST • Private Sale • Gets a little complicated • Different taxes charged on different parts of the price…
Private Sale Costs • Asking Price? • The money you pay to the vendor. • Will any diagnostic work or repairs need to be done on the vehicle? • Cost + PST +GST • Book Value? • PST charged on this amount
Private Sale Cost • Safety Inspection? • $40.00 + GST • Lien search? • $3.00, no tax. • Find the total
Example 1 • Gordie wants to buy a used car from a private owner. • The asking price is $1995, and the car has a book value of $2500. • Gordie needs to do a lien search. • He has a diagnostic test done for $30, and finds out that the car needs some engine work, $650. • The car has not had a Safety Inspection. • How much will this car cost Gordie?
Example 2 • Les Munny goes to a reputable dealer in town to buy his car. The dealer has a car he likes for $5500. How much will this car cost him?
Assignment Assignment 3
Owning a Vehicle Fuel Economy
Fuel Economy • Amount of fuel needed to drive a set distance • litres per 100 Km. • divided into city driving and highway driving • Listed on the window sticker • Calculate fuel economy by tracking odometer readings between fill-ups.
Examples • A car requires 40L of gasoline to fill the tank. If the cost of gasoline is 98.5¢/L, calculate the cost to fill the tank. • You fill up your car at the gas station and get a bill for $36.50, how much gas did you purchase?
Examples • You leave for a weekend at the lake, and find your odometer reading to be 012862.8. When you get back to the city it has a reading of 013639.7, how far did you drive over the weekend?
Examples • A car with a full tank of gas travelled 572km before stopping at a gas station. • If the car requires 41.2L of gas to fill the tank, find the fuel economy of the car. • Find the cost of fuel per 100km if the cost per litre was 98.5¢.
Examples • One week you track all the driving you do and find you drove a total of 350km in the city, and 200km on the highway. • Your car has a fuel economy of 10.5L/100km in the city and 7.4L/100km on the highway. Gasoline costs 98.5¢/L. • Calculate the how much fuel you used, and the cost of the fuel.
Assignment Page 146 #1-11