CH 8 Vehicles and Other Major Purchases

Disposition Fee

Determined once you turn vehicle back in at end of lease.

Comparison Shopping

process of comparing products or services to find the best buy. Lowest price does not ensure best buy as quality has to be factored in.

Leasing

- Always negotiate a purchase price first - Require cash to pay for first month payment and security deposit - Payments based on cap cost of asset minus cap cost reductions and residual value

7 Steps in Planned Buying Process

1. Prioritizing wants 2. Preshopping research 3. Fitting your budget 4. Comparison shopping 5. Negotiating 6. Making the decision 7. Evaluating the decision

Full Warranty

1. Product must be fixed at no cost to buyer within a reasonable amount of time. 2. Owner will not have to undertake an unreasonable task to return the product for repair. 3. Defective product will be replaced with a new one or the buyer's money will be returned after a reasonable number of attempts to fix it.

Tips for Buying Online

1. Use only secure sites. Will have a key or lock symbol on screen and will have https with s for secure. 2. Only do business. EX: company website. 3. Review shipping policies and costs of returns. 4. Do not use your regular e-mail address. 5. Never use a debit card for online purchasing. Using a credit card allows you to request a chargeback if there is a problem. 6. Use only one particular credit card for online purchases. In case stolen only have to notify one credit company. 7. Print and keep copies of all purchase documents. 8. Check the sites privacy policy for TRUSTe symbol or BBB Online seal. 9. Opt out of any list sharing.

Regulation M

Administered by FED. Regulates mandatory disclosure of pertinent information about the lease.

Dealer Invoice Price (base invoice price)

Amount the automaker charges the dealer for the new vehicle when dealer buys them. Does not take into account any discounts dealer may get. Dealer may try to inflate by including additional charges.

Upside Down

Avoid long term borrowing. This is a situation where the owner of a financed asset owes more than it is worth, creating negative equity. Avoid loans in duration of longer than 5 years.

"as is"

Buyer assumes all risks of nonperformance. Way seller gets around legal requirements of a warranty.

"Rule of Three"

Compare at least 3 alternatives before making a decision

Same as Cash Offers

Financing charges delayed for 90 days to length of 1 year. Careful as these options often retroactively apply interest or fees if payment is received late or fully paid off during the required time period.

Loan Preapproval (Vehicle)

Get from credit union or bank prior to going to seller. Credit bureaus use different ratings for vehicles based on buyers more targeted history with this type of loan.

Preshopping Research

Get info before actually beginning to interact with sellers. Friends and internet are two big sources of info outside of sellers and service providers.

Early Termination Payoff

Includes early termination fee and unpaid lease balance.

Gross Capitalized Cost (gross cap cost)

Includes vehicle price plus cost of any extra features such as insurance or maintenance agreements.

Sources for Prices on Vehicles

Kelly Blue Book, Edmunds, NADA

Balloon Automobile Loan

Low monthly payment similar in amount to that required if the vehicle had been leased and with a large final payment similar in amount to the residual value under a lease. 3 options when balloon payment is due. 1. Sell car hopefully for enough to pay off balloon payment. 2. Pay the balloon payment. 3. Return vehicle to the lender to cover the balloon payment.

The Money Factor (lease rate/lease factor)

Measures rent charge portion of your payment. May not measure overall cost of financing the lease. Sometime described by dealers as a way to compare leases.

Capitalized Cost Reductions (cap cost reductions)

Monies paid on lease at its inception, including any down payment, trade-in-value, or rebate.

Closed-end Lease (walkaway lease)

No charge if projected residual value is higher than actual market value at the end of the lease. May have fee if there is greater than normal wear or excess mileage. May purchase at end of lease for residual value.

Limited Warranty

Offers less than full. May only offer free parts, but not labor. Some parts may be covered under full warranty and others under limited of a single product.

Consumer Reports

Only magazine that objectively tests and reports on numerous product categories

New-Vehicle Buying Service

Org that arranges discount purchases for new-car buyers who are referred to nearby participating auto-dealers that have agreed to charge specific discount prices.

Gap Insurance

Pays off the remainder of the loan if the insurance payment is insufficient. Usually a bad deal for the buyer.

Dealer Holdback (dealer rebate)

Percentage of the total MSRP that the manufacturer holds and then gives back to the dealer at the end of the year or quarter.

Negotiating (haggling)

Process of discussing actual terms of an agreement with a seller. Successful negotiating based on being armed with accurate info on price, interest rate, trade-in value, dealer holdbacks.

Implied Warranty

Product is warranted to be suitable for sale (warranty of merchantability) and to work effectively (warranty of fitness) whether or not a written warranty is in place. Required by state law. Only exception is if it is being sold "as is".

Residual Value

Projected value of a leased asset at the end of the lease time period.

Lease

Rental of a product while ownership title remains with the lease grantor.

Manufacturer's Suggested Retail Price (MSRP)

Retail price set by manufacturer and posted on federally required side window sticker. Dealership will want full MSRP plus miscellaneous fees. Goal of buyer to negotiate to get lower "real price" than MSRP.

Rebate

Seller refunds a portion of the purchase price either as direct payment or as a credit against future purchases (EX: gift card). May accept over a lower APR. This means paying more than vehicle is worth to receive rebate in cash.

Adjusted Capitalized Cost (adj cap cost)

Subtracting the capitalized cost reductions from the gross capitalized costs.

Express Warranties

Written or oral warranties. Regulated by Magnuson-Moss Warranty Act is sold for more than $15. Must be classifies as full or limited warranty.

Open-end Lease

You must pay difference between the projected residual value and its actual market value at the end of the lease. EX: Must pay extra if vehicle has additional depreciation. Amount limited by Consumer Leasing Act to 3 times the average monthly payment. May purchase at end of lease for actual cash value.

Extended Warranty (service contract, maintenance agreement, buyer protection plan)

agreement between buyer and seller to provide repair or replacement of covered parts of product for a specified time period. Purchased separately from product itself. Horribly overpriced.

Impulse Buying

buying too quickly without fully considering priorities and alternatives. often regret their decisions later and waste money.