Chapter 8 Flashcards
What are the two components to car payments?
down payment (cash, trade-in, or both); monthly payment
What is a car monthly payment?
35% or less of gross income should service all debt (and rent)
How should we decide between a dealer loan and a bank loan?
dealer loan may be lower rate, but don’t get rebate, so bank loan may be cheaper
What is the recommended term for a car loan?
no longer than 4 years
What percentage should be budget for registration/taxes/other out-of-pocket fees?
extra 7-8%
What is the Texas tax on the sale of automobiles?
6.25%
What are the three types of traction control?
2WD, 4WD, AWD
What are the three types of “style factor?”
2-door vs. 4-door, convertible vs. hard top, color combination
Give 6 general characteristics/practices you should observe when checking out a car.
tires; brakes; check engine light on; A/C + heat; car fax; don’t look at night or in rain
Give three examples of car extras you don’t need.
fabric protection; paint protection; etching of VIN on windows
Is car extended warranty recommended?
not recommended if you purchase a quality automobile
Asking price =
MSRP + options + destination charge
Define invoice.
dealer’s cost
Define rebates.
amount returned to buyer
Define dealer incentives.
rebates, low financing rates, etc.
Define holdback.
typically 2-3% of price paid to dealer by manufacturer to reduce dealer’s costs
Define dealer’s true cost.
dealer’s true cost = invoice - rebates - holdback
What is the tradeoff with trade-ins?
you’ll get a better price if you sell on your own, but it’s more convenient to trade in your vehicle
What is the tax advantage of car trade-ins?
you get tax savings when you trade in (pay tax on net value of new vs. old autos)
What is an auto lease?
contractual agreement with monthly payments to use the auto, typically 3-5 years
The cost of an auto lease is a function of
interest and depreciation
Define capitalized cost.
vehicle price, which is about 96% of MSRP (about 92% of MSRP for purchase)
Define money factor.
interest rate
Define residual value.
expected value at end of the lease
Define closed-end lease.
return vehicle at the end of the lease and “walk away,” regardless of residual value
Define open-end lease.
at lease’s end, pay extra if sale price is less than residual expected value set in lease
What’s the deal with insurance premiums on auto leases?
insurance premiums are generally higher on leased autos
What are three advantages of leasing autos?
no or low down payment; drive higher-priced car than you can afford to buy; almost always covered by manufacturer’s warranty
What are six disadvantages of leasing autos?
costs more because of financing; payments go on forever; limited miles; early termination fees; higher insurance rates; no customization
The average used car costs what compared to a new car?
average used car costs about $10,000 less than a new car
A used car costs how much to operate per mile, compared to a new car?
costs about $0.35 per mile for a used auto, versus $0.50 per mile for a new one
Is a service contract recommended for new cars?
No
How much should you pay for a new car in relation to the dealer invoice price?
pay only +/- $200 in relation to dealer invoice price
What is lowballing?
dealer quotes a very low price, but add-on costs occur
What is highballing?
dealer offers very high trade-in value, but increases cost of new car
(T/F) Lemon Laws apply to both new and used cars.
False, they only apply to new cars
What are the advantages of used cars?
let someone else take depreciation hit; lower insurance cost; can buy more car for th emoney
What are the cons of used cars?
unsure of maintenance history; can be a lemon; can’t pick out options or color
Review the last slide of Chapter 8.
review
