Car Loan Project
Key Economic Concepts:
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Choice
Decision Making
Opportunity Cost
Description:
Each student will buy (hypothetically) a car that will need to be financed. The student will
need to look at different options and decide which will be the best choice for his situation.
The student will need to find an advertisement for a car that he would like to purchase. Each
student will hand in a report that details his findings.
Lesson Objectives:
Students will:
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Use economic concepts and mathematical calculations in making hypothetical decisions
about buying and financing a car.
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Work with their families in experiencing this real-life application.
Introduction:
Tell the student that they are going to buy a car that will need to be
financed. The students will need to look at different options and
decide which will be the best choice for their situation.
The students will need to find an advertisement for a car that they
would like to purchase. The students will hand in a report that
details their findings.
Resources:
•"Edmunds Car Buying Guide": This web site features both new and used car prices and also
gives (under Tips and Advice) excellent discussion of leasing versus buying, and whether to
trade-in a vehicle or sell it yourself.
www.edmunds.com/
•"Kelley Blue Book; The Trusted Resource": This web site features "blue book" values--that is,
prices you may expect to find when shopping for a used car from a dealer.
www.kbb.com/kb/ki.dll/ke.kb.sp?kbb&&&usedCars;slp
•"Amortization Calculator": Use this form to calculate repayments, for principal and interest,
on a loan taken out for a given time period and interest rate.
www.bankrate.com/brm/amortization-calculator.asp
•"Cascade Bank": An Auto Loan Internet Application that you can use to apply for a loan
through Cascade Bank.
http://www.cascadebank.com/personalbanking/pdfs/Consumer_credit_app08.pdf
Process:
1. Have your students find an advertisement for a car that they would like to purchase.
Remember to look have the students look at different options and discuss with their parents
which car will best suit their needs in your present situation. For the cars that they will
consider, have the students use "Edmunds Car Buying Guide" at www.edmunds.com/ to learn
how the advertised prices compare with market prices generally for cars of the same make,
year, and model. Edmunds has both new and used car prices and also gives excellent discussion
of lease versus buying and whether to trade-in a vehicle or sell it yourself.
2. After finding the ad for the car of their choice, have the students fill out the Cascade Bank
auto loan application form at
http://www.cascadebank.com/personalbanking/pdfs/Consumer_credit_app08.pdf. Make the
students decide whether they will have a down payment or a trade-in. Tell the students that
they need to be sure to use realistic values. Also remind them that they don’t have to put
down actual information, they may make it up. Your job could be the job you have now or a
future job.(NOTE: this is a classroom activity and remind your students to not fax or send in
your assignment to the Cascade Bank)
3. Tell the students that once they have found the automobile of their choice and have
determined the amount they will be spending on the car, that they need to calculate the
monthly payments. Explain to the students that the "Amortization Calculator" at
http://ray.met.fsu.edu/~bret/amortize.html may be helpful in calculating the monthly
payments according to the amount of borrowed principal.
Have the students calculate the monthly payment for their car for each option below using the
monthly payment formula (neatly handwritten).
Loan
Interest Rate
Length in Years
I
8%
5
II
9.75%
3
III
10.25%
4.5
IV
18%
2.5
V
22.25%
4
4. Have the students provide a word processed summary of their project. Have the students
explain what they think their best loan option would be, and to justify their conclusion. Also,
discuss with the students what situations might make them decide not to take based on the
following:
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The
The
The
The
lowest interest rate
smallest monthly payment
shortest time
loan with the lowest cost
Tell the students that as part of their written summary, they may include what they have
learned from this project.
5. Explain to the students that the following information must be included in their final report:
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Evaluation sheet
An ad for the car of their choice
A completed loan application
Monthly payments for each option calculated by using the monthly payment formula
(neatly handwritten).
Total cost of the loan for each option (monthly payment multiplied by number of
payments-neatly handwritten).
Printed copy of an amortization schedule of the loan option that is best for their
situation
A word processed summary of which is the best loan option for their situation along
with a justification of why. A summary of what the students have learned from this
project should be included in the written summary.
A completed decision making grid
Conclusion:
Tell the students that after completing the lesson, they will have an
understanding of the process of buying an automobile via financing.
Food for thought: How might this process work if they were to lease
an automobile? How would sales tax, insurance, and licensing fees
affect the total cost of purchasing an automobile?
Advice:
The students could be asked to do this as one big project or it could be broken into parts--to
help the students organize their time and all the information they will gather. The instructor
could collect different parts of the project at different times, evaluate the material, hand the
material back and then continue with the project.
Assessment Activity:
Self Evaluation Rubric: A rubric that will be used to evaluate your project.
Car Loan Rubric: A rubric that should be used to check and make sure the students turned in all
their items.
Extension Activity:
Students could utilize a spreadsheet to check their written calculation for monthly payments
and total cost of the loans. Students could also use the evaluation activity to keep track of
their progress. Visit this link for a free auto loan calculator for excel:
www.vertex42.com/Calculators/auto-loan-calculator.html.