Personal Finance
Chapter 23
Identify Your Needs and Wants

Think about what you NEED from your
car.
How much will I drive?
 Do you plan to haul a lot of people or gear?
 Will I take the car off-road?


What features would you WANT if you
could afford them?
Identify Your Needs and Wants

After you have made a list of your wants
and needs, prioritize them.

You may have to trade off some of the
“wants” for the lower price.
Determine What You Can Afford

Before you start shopping for a car,
determine how much you can afford to
spend.

One general guideline:
 You should not have monthly payments that
take up more than 20% of the money you
have left over after paying your regular
expenses.
Identify and Research Your Choices

Select several types of cars that would
meet your needs and research the
features of each possibility using places
like Consumer Reports.

Compare the features of the models you
are considering against your list of
wants and needs, and note the pros and
cons.
Decide Whether to Buy
New or Used
A new car is much more expensive than
the same model bought used.
 A new car loses much of its value as
soon as it is driven off the lot.
 Buying a well-maintained used car can
save you money.
 But, used cars are likely to need more
repairs.

Decide How You Will Pay For It

Preapproval is the process of getting a
new or used car loan pre-arranged
through your bank or credit union.
 Typically, the preapproval will expire within
30 or 60 days, and you will then have to
reapply.
Check Insurance Rates

Check out the insurance rates on your
vehicle choices.

If a car is rated as a “sports car” the cost
of insurance may be much higher than
vehicles rated highly for safety.
Search for Available Vehicles

Search newspapers, online, and print
publications for available vehicles in
your area.

Many dealer websites allow you to
search through their inventory and get
prices before going to the dealership.
Test Drive Each Vehicle
Compare the ride, handling, brakes,
features, and cost.
 Take your time– don’t be in a hurry when
shopping for this purchase!
 Check the dealer’s reputation as well.

Check the History of a Used Vehicle
The Vehicle Identification Number (VIN) is a an
alphanumeric number that identifies each
vehicle manufactured in the US.
 It is available on vehicle documents and on the
dashboard of the car, visible through the front
windshield.
 You can enter the VIN at www.carfax.com where
you can purchase a detailed history of the car.
 This will cost you money, but you will find out if
the vehicle has been in an accident, how many
times it has been sold, and the mileage readings
when it was sold.

Get the Vehicle Checked Mechanically
After the used vehicle as passed the
VIN check list and you want to buy it, get
it checked out by a mechanic.
 Ask for a record showing that the car
has passed the vehicle emission test,
which is a test to verify that a vehicle
meets the minimum clean-air standards.

Determine a Fair Price

Decide what price you think is fair before
you make an offer for a car.

Kelley Blue Book publishes a pricing
guide for all models and all years.

By looking up the model and year of the
car you are considering, you can find an
estimated fair price for it.
Determine a Fair Price

The sticker price on a car, or
manufacturer’s suggested retail price
(MSRP) is the price shown on the tag in
the car’s window.

A fair price for a new car usually lies
somewhere between the sticker price
and the price the dealer paid for it (the
invoice price).
According to the Automobile Association
of America (AAA), the dealer’s invoice is
approximately 90% of sticker for
compact and subcompact vehicles, 8487% of sticker for luxury vehicles.
 A fair price is likely to be 3-6% over the
invoice price.

Negotiate the Price
Statements like, “This is the only car I
want,” or “This is just what I am looking
for,” weakens your bargaining position.
 Don’t reveal emotions.
 Make your initial offer lower than your top
price, and then be prepared to negotiate.

 A car-buying service allows you to choose the
vehicle features you want, and the service will
located it, negotiate the price, and arrange for
the delivery (for a fee).
Negotiate the price of the new car
separately from the price for your tradein.
 After you have settled on a price for your
new car, then ask the dealer how much
they will give you for your old car.
 If the dealer will not offer an amount
close to the value in Kelley Blue Book,
you may want to consider selling it
yourself.

Dealer Add-Ons

After you have agreed on a price, the
dealer may try to increase the purchase
price by the use of dealer add-ons–
high-priced, high-profit dealer services
that add little or no value. For example:
 Dealer preparation
 Special wax or polish
 Rust-proofing
Financing Your Car

Financial Institutions
 Banks, credit unions and even insurance
companies offer car loans for 36, 48, 60, or
72 months.
 Longer terms mean lower monthly
payments, but higher total interest paid
because you are using the money for a
longer period of time.
Financing Your Car

Car Dealers
 Most new car dealers offer financing
 On particular models during particular times of
the year they may offer better terms than others.
 GMAC (General Motors Acceptance
Corporation) is an example of a finance
company that makes loans on cars through
dealerships.
 Most other manufacturers offer similar
programs.
 You would make your payments to the finance
company, not to the dealer.
Leasing a Car



A car lease is similar to an apartment lease. It
is a written agreement that allows you to use
the property (the car) for a specified period of
time and monthly payment.
You do not own the car, you are simply
renting its use.
At the end of the lease period, you usually
have the option to buy the car for the price
specified in the lease agreement, which is
based on the expected value of the car at the
end of the lease term.
Leasing a Car
Because interest on car loans is not tax
deductible, leasing is a popular option.
 People can afford to lease a more
expensive car than they would be able
to buy on credit.
 An advantage is that there is no down
payment, no trade-in to worry about, and
a new car every few years, but in the
end, you actually own nothing, and you
may have to pay penalties for excess
mileage or wear and tear.

Consumer Protection
for Car Buyers
Warranty- a written statement about a
product’s qualities or performance that
the seller assures the buyer are true.
 A new car warranty provides a buyer
with some assurance of quality.
 Car warranties vary in the time and
mileage of the protection they offer and
in the parts they cover.

Lemon Laws

Lemon laws exist in many states and
protect consumers from the
consequences of buying a defective car.

A lemon is a car with substantial defects
that the manufacturer has been unable
to fix after repeated attempts.

You have a lemon if, in the first year of
ownership or 12,000 miles:
 a) you have taken the car to the dealer for
four or more unsuccessful attempts to repair
the same substantial defect or
 b) your car has been out of service for a
total of at least 30 days
Lemon laws allow you to get a new car
or your money back.
 You need to have good documentation
and be prepared for a long process. A
procedure called arbitration and a
possible lawsuit may be necessary to
enforce your state’s law.

FTC Used-Car Rule

People who buy a used car must be concerned
about whether it has some hidden defects or
potentially expensive repairs ahead.

The Federal Trade Commission “Used-Car Rule” is
designed to protect used-car buyers.

The rule does not guarantee that the car has no
problems, but does require used-car dealers to
inform consumers ahead of purchase about who
will be responsible for paying for certain repairs if
they occur after the sale.




The rule requires dealers to place a sticker,
called the “Buyer’s Guide” on all used cars
they offer.
If the “As Is” box is checked, the buyer must
pay all repair costs.
If the “Warranty” box is checked, the dealer will
pay to repair the items listed as under
warranty for the specified period of time.
Cars bought from a private seller do not have
a warranty.
Maintaining Your Vehicle
Cost of Operating a Car

Fuel
 The cost of gasoline depends on the fuel
efficiency of your car’s engine and number
of miles that you drive.
 Larger vehicles and more powerful engines
require more fuel.
 In an effort to improve gas mileage and
reduce air pollution from exhaust fumes, you
may want to buy a hybrid vehicles- they use
alternate energy sources, like natural gas or
battery power, in addition to gasoline.
Depreciation- a decline in the value of
property due to normal wear and tear.
 As a car ages, the number of miles
driven increases, the physical condition
begins to deteriorate, and mechanical
difficulties arise.
 Also, styles and consumer tastes
change over time.
 All these factors usually cause cars to
lose market value.

Not all cars depreciate– very old
vehicles in excellent condition may
appreciate in value if people value them
as collector’s items.
 Depreciation is the single greatest cost
of owning a car- the cost of gasoline is
second.
 A car will retain more of its value over
time if it is well-maintained and has
fewer miles on it at the time of sale.

Registration and Title
All states charge a fee to register a car titlethe legal document that establishes
ownership.
 A car title lists the legal owner (usually the
lending institution) and the registered owner
(you)
 You must pay title fees and sales taxes only
at the time you buy the car.
 However, you must pay a tag fee each year
and pay for emissions testing in some states
every few years.

Maintenance and Repairs
The owner’s manual will tell you what
services your car needs and how often.
 Typically, you change the oil every few
thousand miles, have a major engine
tune-up every 20,000 to 30,000 miles,
and perform other maintenance at
scheduled intervals.


You should plan for unscheduled
repairs, like flat tires, broken belts, and
leaky hoses that can be costly.
Accessories

Things that are added to the vehicle, like
snow tires, floor mats, seat covers, paint
features, alarm and sound systems.
Extending the Life of Your Car

Maintain Fluid Levels
 Many newer cars claim to run 7,000 or more
miles between oil changes, but changing the
oil more frequently can add years of life to a
car.
 Oil lubricates the moving parts of the engine
and keeps it clean.
 Oil must be changed to eliminate
accumulated dirt and sludge, and experts
recommend you change the oil every 3,000
miles or 3 months.
Extending the Life of Your Car

Perform Routine Maintenance
 Don’t wait for trouble before checking fluid
levels and inspecting belts, hoses, and tire
pressure.
 Inspect tires for wear and replace them
before tread wear puts you in danger of a
blowout.
 These checks may cost a few hundred
dollars a year, but will save you major
repairs in the long run.
Extending the Life of Your Car

Keep Your Car in a Garage
 If possible, keep your car in a garage
 This protects the vehicle from theft and
vandalism
 Also protects from weather, which can
damage or destroy the vehicle’s finish and
even affect its mechanical condition.
 Low temperatures make it harder for the
engine to start, and the starter has to work
harder, and the charging system is stressed.
Extending the Life of Your Car

Preserve the Exterior
 When water sits on the surface of metal, it
can cause rust.
 Cleaning off road grime occasionally will
protect the shiny finish.
 Apply protective wax to guard your paint
from the damaging rays of the sun and from
snow-melting chemicals spread on streets in
cold climates.
 If you live near a coast, wax is essential for
protecting the vehicle from the salty air.
Once paint has begun to oxidize
(permanently lose its color and shine
because of chemical reaction with the
air) it is very difficult to restore the
original gloss.
 In most cases a vehicle with oxidized
paint must be repainted to restore its
shine.





A polishing compound is a substance that can
smooth out surface scratches, scuffs, and
stains
They often contain abrasives, which are
coarse materials that scour or rub away a
surface.
Used gently, an abrasive can remove the top
layer of paint and will expose shiny paint
underneath.
Rubbed too vigorously, an abrasive will strip
the paint down to the primer.
You also want to repair dents and paint
chips before rust ahs a chance to take
hold.
 You should touch up dings or nicks with
vehicle paint that matches your color.

Extending the Life of Your Car

Preserve the Interior
 The condition of the inside of your vehicle is




also very important for good resale value.
The upholstery is the seat-covering material.
Generally, cloth upholstery is more durable
than vinyl.
Although spills and dirt are more difficult to
clean off of cloth, vinyl can crack, tear, or get
punctured.
Leather holds up best, but is most
expensive.
Floor mats will protect the carpeting
 You can cover the interior of your trunk
with an old blanket
 Vacuum frequently
 Avoid parking car in the sun to avoid
fading

Follow Wise Driving Habits

New vehicles have a “break-in” period,
and you would need to drive differently
during this period than later in your
vehicle’s life.
When the Vehicle is New:




Don’t drive for long stretches at a constant
speed. Vary speed as driving conditions
permit.
During the first thousand miles, drive
progressively faster, accelerating gradually.
Avoid fast starts, sudden stops, sharp turns,
and rapid gear changes to help your brakes
get broken in.
Drive at moderate speeds and around town,
avoiding long trips so your tires can get
adjusted .
For All Vehicles:




Don’t race a cold engine. Give it 10 to 15
seconds to warm up to allow the oil to start
circulating.
Keep coolants in the radiator during hot
weather and anifreezes in it during very cold
weather.
When driving a vehicle with a manual
transmission, shift deliberately, pausing as you
move through the neutral position.
Don’t shift into a forward gear when your
vehicle is rolling backward, or vice versa.





When stopped in traffic, hold the vehicle in place
with the brakes rather than engaging the clutch, to
avoid excessive wear on the clutch.
Don’t turn the steering wheel when the vehicle is
motionless. This strains the front-end components.
Turn the wheel only when the vehicle is moving.
Keep the windshield and back window free of ice
and use a scraper. Running wiper blades over a dry
surface can scratch the surface.
Glance at gauges and warning lights as you drive.
When your vehicle signals you to stop or to get
something checked, do it right away.
Always wear your seatbelt.