Personal Finance Exam 2

implied warranty

covers a product's intended use or other basic understandings that are not in writing

step 2

find and evaluate property to purchase

building a home

for people who want certain specifications.

SECURED LOAN

pledge property or other assets as collateral, you'll probably receive a lower interest rate on your loan

General rules of credit capacity

-Debt Payments-to-Income Ratio -Debt to Equity Ratio

Exhibit 8-1

Buying influences and wise spending strategies pic 1

exhibit 6-7 TransUnion personal credit score

p 212

capital

the borrower's assets or net worth.

conventional mortgage

A fixed-rate, fixed-payment home loan with equal payments over 10, 15, 20, 25, or 30 years.

baby boom generation (born between 1946 and 1964)

currently represents about 30 percent of the population but holds nearly 60 percent of the outstanding debt. ;half of Gen Xers and baby boomers consider credit cards to be a financial survival tool

expensive loans

from finance companies, retailers, and banks through credit cards

implied warranty of merchantability

guarantees that the product is fit for the ordinary uses for which it is intended: A toaster must toast bread, and an MP3 player must play audio files. Implied warranties vary from state to state

exhibit 9-5

home buying process pic 12

exhibit 9-3

housing rental activities pic10

Certified preowned (CPO)

nearly new cars that come with the original manufacturer's guarantee of quality. The rigorous inspection and repair process means a higher price than other used vehicles

FICO AND VANTAGESCORE

need about a 760 score to get the best mortgage rate, and a score of 720 to get the best deal on an auto loan

adjustable-rate mortgage (ARM)

A home loan with an interest rate that can change during the mortgage term due to changes in market interest rates; also called a flexible-rate mortgage or a variable-rate mortgage.

bankruptcy

A legal procedure for dealing with debt problems of individuals.

rate cap

A limit on the increases and decreases in the interest rate charged on an adjustable-rate mortgage.

payment cap

A limit on the payment increases for an adjustable-rate mortgage.

open-end credit

A line of credit in which loans are made on a continuous basis and the borrower is billed periodically for at least partial payment.

Co-branding

the linking of a credit card with a business trade name offering "points" or premiums toward the purchase of a product or service.

home equity loan

A loan based on the current market value of a home less the amount still owed on the mortgage. ;if you miss payments on a home equity loan, you can lose your home

reverse mortgage

A loan based on the equity in a home, that provides elderly homeowners with tax-free income and is paid back with interest when the home is sold or the homeowner dies.

Consumer Credit Counseling Service (CCCS)

A local, nonprofit organization that provides debt counseling services for families and individuals with serious financial problems.

WHEN THE REPAYMENT IS EARLY: THE RULE OF 78s

A mathematical formula to determine how much interest has been paid at any point in a loan term ;favors lenders and dictates that you pay more interest at the beginning of a loan, when you have the use of more of the money, and pay less and less interest as the debt is reduced

previous balance method

A method of computing finance charges that gives no credit for payments made during the billing period.

average daily balance method

A method of computing finance charges that uses a weighted average of the account balance throughout the current billing period.

evaluating adjustable-rate mortgages:

(1) determine the frequency and restrictions for changes in interest rates; (2) consider the frequency and restrictions for changes in the monthly payment; (3) investigate the possibility that the loan will be extended due to negative amortization, and find out if the mortgage agreement limits the amount of negative amortization; (4) find out what index the lending institution will use to set the mortgage interest rate.

Bankruptcy Abuse Prevention and Consumer Protection Act 2005

, which is perhaps the largest overhaul of the Bankruptcy Code since it was enacted in 1978. Signing the bill, the president declared, "Bankruptcy should always be the last resort in our legal system. In recent years too many people have abused the bankruptcy laws. Under the new law, Americans who have the ability to pay will be required to pay back at least a portion of their debts. The law will help make credit more affordable, because when bankruptcy is less common, credit can be extended to more people at better rates. Debtors seeking to erase all debts will now have to wait eight years from their last bankruptcy before they can file again. The law will also allow us to clamp down on bankruptcy mills that make their money by advising abusers on how to game the system."

questions you should consider before you decide how and when to make a major purchase

-Do I have the cash I need for the down payment? -Do I want to use my savings for this purchase? -Does the purchase fit my budget? -Could I use the credit I need for this purchase in some better way? -Could I postpone the purchase? -What are the opportunity costs of postponing the purchase (alternative transportation costs, a possible increase in the price of the car)? -What are the dollar costs and the psychological costs of using credit (interest, other finance charges, being in debt and responsible for making a monthly payment)?

disadvantages of credit

-Temptation to overspend -Failure to repay loan may lead to loss of income -Misuse of credit can create serious long-term financial problems, damage to family relationships, and a slowing of progress toward financial goals -It does not increase total purchasing power -Credit costs money

How can you protect yourself against credit card fraud?

-Treat your cards like money. Store them in a secure place. -Shred anything with your account number before throwing it away. -Don't give your card number over the phone or online unless you initiate the call. -Don't write your card number on a postcard or the outside of an envelope. -Remember to get your card and receipt after a transaction, and double-check to be sure it's yours. -If your billing statement is incorrect or your credit cards are lost or stolen, notify your card issuers immediately. -If you don't receive your billing statement, notify the company immediately

types of open end credit

-line of credit: The dollar amount, which may or may not be borrowed, that a lender makes available to a borrower -interest: A periodic charge for the use of credit.

INEXPENSIVE LOANS

-parents or family members -money borrowed on financial assets held by a lending institution, for example, a bank certificate of deposit or the cash value of a whole life insurance policy. The interest rate on such loans typically ranges from 5 to 7 percent. But the trade-off is that your assets are tied up until you have repaid the loan -

online purchases

-use secure browser -keep records of online transactions -review monthly bank and credit card statements -Read the policies of websites you visit -Keep your personal information private -Give payment information only to businesses you know and trust -Never give your password to anyone online,

exhibit 7-3 DANGER SIGNALS OF POTENTIAL DEBT PROBLEMS

1. Paying only the minimum balance on credit card bills each month. 2. Increasing the total balance due on credit accounts each month. 3. Missing payments, paying late, or paying some bills this month and others next month. 4. Intentionally using the overdraft or automatic loan features on checking accounts or taking frequent cash advances on credit cards. 5. Using savings to pay routine bills such as groceries or utilities. 6. Receiving second or third payment notices from creditors. 7. Not talking to your spouse about money or talking only about money. 8. Depending on overtime, moonlighting, or bonuses to meet everyday expenses. 9. Using up your savings. 10. Borrowing money to pay old debts. 11. Not knowing how much you owe until the bills arrive. 12. Going over your credit limit on credit cards. 13. Having little or nothing in savings to handle unexpected expenses. 14. Being denied credit because of a negative credit bureau report. 15. Getting a credit card revoked by the issuer. 16. Putting off medical or dental visits because you can't afford them right now.

WHAT THE CCCS DOES

1. Aiding families with serious debt problems by helping them manage their money better and setting up a realistic budget and plan for expenditures. 2. Helping people prevent debt problems by teaching them the necessity of family budget planning, providing education to people of all ages regarding the pitfalls of unwise credit buying, suggesting techniques for family budgeting, and encouraging credit institutions to provide full information about the costs and terms of credit and to withhold credit from those who cannot afford to repay it.

if you cosign

1. Be sure you can afford to pay the loan. If you are asked to pay and cannot, you could be sued or your credit rating could be damaged. 2. Consider that even if you are not asked to repay the debt, your liability for this loan may keep you from getting other credit you want. 3. Before you pledge property, such as your automobile or furniture, to secure the loan, make sure you understand the consequences. If the borrower defaults, you could lose the property you pledge. 4. Check your state law. Some states have laws giving you additional rights as a cosigner. 5. Request that a copy of overdue-payment notices be sent to you so that you can take action to protect your credit history.

if your identity is stolen

1. Contact the fraud departments of each of the three major credit bureaus (see the table that follows). Tell them to flag your file with a fraud alert, including a statement that creditors should call you for permission before they open any new accounts in your name. 2. Contact the creditors for any accounts that have been tampered with or opened fraudulently. Ask to speak with someone in the security or fraud department, and follow up in writing. 3. File a police report. Keep a copy in case your creditors need proof of the crime.

what are the costs?

1. Court costs. The debtor must pay a filing fee to the clerk of the court at the time of filing his or her petition. The filing fee may be paid in up to four installments if the court grants authorization. 2. Attorneys' fees. These fees are usually the largest single item of cost. Often the attorney does not require them to be paid in advance at the time of filing but agrees to be paid in installments after receipt of a down payment. Fees range between $2,000 and $4,000, depending on the state, the attorney, and the complexity of your bankruptcy case. 3. Trustees' fees and costs. The trustees' fees are established by the bankruptcy judge in most districts and by a U.S. trustee in certain other districts.

WARNING SIGNS OF DEBT PROBLEMS

1. Emotional problems, such as the need for instant gratification, as in the case of a man who can't resist buying a costly suit or a woman who impulsively purchases an expensive dress in a trendy department store. 2. The use of money to punish, such as a husband who buys a new car without consulting his wife, who in turn buys a diamond watch to get even. 3. The expectation of instant comfort among young couples who assume that by using the installment plan, they can have immediately the possessions their parents acquired after years of work. 4. Keeping up with the Joneses, which is more apparent than ever, not only among prosperous families but among limited-income families too. 5. Overindulgence of children, often because of the parents' own emotional needs, competition with each other, or inadequate communication regarding expenditures for the children. 6. Misunderstanding or lack of communication among family members. For example, a salesperson visited a Memphis family to sell them an expensive freezer. Although the freezer was beyond the means of this already overindebted family and too large for their needs anyway, the husband thought his wife wanted it. Not until later, in an interview with a debt counselor, did the wife relate her concern when she signed the contract; she had wanted her husband to say no. 7. The amount of the finance charges, which can push a family over the edge of their ability to pay, especially when they borrow from one company to pay another and these charges pyramid.

who may obtain a credit report? time limits on adverse data incorrect info in credit file exhibit 6-4 sample dispute letter

205

exhibit 6.5 what if you are denied credit?

208

second mortgage

A cash advance based on the paid-up value of a home; also called a home equity loan.

deed

A document that transfers ownership of property from one party to another.

Truth in Lending law

A federal law that requires creditors to disclose the annual percentage rate (APR) and the finance charge as a dollar amount.

Fair Debt Collection Practices Act (FDCPA)

A federal law, enacted in 1978, that regulates debt collection activities.

revolving check credit

A prearranged loan from a bank for a specified amount; also called a bank line of credit.

credit bureau

A reporting agency that assembles credit and other information about consumers.

collateral

A valuable asset that is pledged to ensure loan payments

Chapter 13 bankruptcy

A voluntary plan that a debtor with regular income develops and proposes to a bankruptcy court. ;Obtaining credit may be easier for people who file a Chapter 13 bankruptcy and repay some of their debts than for people who file a Chapter 7 bankruptcy and make no effort to repay. ;bankruptcy law prohibits your employer from discharging you simply because you have filed a bankruptcy case

credit

An arrangement to receive cash, goods, or services now and pay for them in the future.

appraisal

An estimate of the current value of a property ;asking price is influenced by recent selling prices of comparable homes in your area, demand in the housing market, and available financing based on current mortgage rates

buy-down

An interest rate subsidy from a home builder or a real estate developer that reduces a home buyer's mortgage payments during the first few years of the loan.

credit insurance

Any type of insurance that ensures repayment of a loan in the event the borrower is unable to repay it.

Equal Credit Opportunity Act (ECOA)

Bans discrimination in the extension of credit on the basis of race, color, age, sex, marital status, and other factors.

CHAPTER 7

CHOOSING A SOURCE OF CREDIT: THE COSTS OF CREDIT ALTERNATIVES

CHAPTER 6

Consumer credit

Before deciding whether to borrow money, ask yourself these three questions:

Do I need a loan? Can I afford a loan? Can I qualify for a loan?

debit card

Electronically subtracts the amount of a purchase from the buyer's account at the moment the purchase is made

three major credit bureaus:

Experian Information Solutions (formerly TRW, Inc.), TransUnion Credit Information Company, and Equifax Services, Inc.

AVOID PREDATORY LENDING, MAKE SURE

Explore other financing options. Do your homework: contact several lenders, compare interest rates, payments, terms of the loan, other fees, and costs of the loan. Know your rights under the law.

defective goods or services

Fair Credit Billing Act provides that you may withhold payment on any damaged or shoddy goods or poor services that you have purchased with a credit card as long as you have made a sincere attempt to resolve the problem with the merchant

closing costs

Fees and charges paid when a real estate transaction is completed; also called settlement costs.

in case of billing error exhibit 6-8

First, call your creditor. notify the creditor in writing within 60 days after the bill was mailed p 215

YOUR RIGHTS UNDER CONSUMER CREDIT LAWS

If you believe you have been refused credit due to discrimination, you can do one or more of the following: 1. Complain to the creditor. Let the creditor know you are aware of the law. 2. File a complaint with the government. You can report any violations to the appropriate government enforcement agency (see Exhibit 6-11). Although the agencies use complaints to decide which companies to investigate, they cannot handle private cases. When you are denied credit, the creditor must give you the name and address of the appropriate agency to contact. 3. If all else fails, sue the creditor. You have the right to bring a case in a federal district court. If you win, you can recover your actual damages and punitive damages of up to $10,000. You can also recover reasonable attorneys' fees and court costs. A private attorney can advise you on how to proceed.

Types of Closed End Credit

Installment sales credit is a loan that allows you to receive merchandise, usually high-priced items such as large appliances or furniture. You make a down payment and usually sign a contract to repay the balance, plus interest and service charges, in equal installments over a specified period. Installment cash credit is a direct loan of money for personal purposes, home improvements, or vacation expenses. You make no down payment and make payments in specified amounts over a set period. Single lump-sum credit is a loan that must be repaid in total on a specified day, usually within 30 to 90 days. Lump-sum credit is generally, but not always, used to purchase a single item. As Exhibit 6-2 shows, consumer credit reached over $3.8 trillion in the beginning of 2018.

title insurance

Insurance that, during the mortgage term, protects the owner and lender against financial loss resulting from future defects in the title and from other unforeseen property claims not excluded by the policy.

simple interest

Interest computed on principal only and without compounding.

Credit CARD Act had a sweeping effect on annual percentage rates, fees, and disclosures:

Limits card issuers' ability to increase the APR on transferred balances during the first year that the account is opened. Restricts card issuers from applying new (higher) interest rates to the existing card balances. Requires companies to inform consumers of rate increases or other significant changes at least 45 days in advance. States that teaser rates must stay in effect for at least 6 months. Requires issuers to mail monthly statements at least 21 days before payment is due. Makes new disclosure statements clear and more timely. Mandates that monthly credit card statements must prominently display the due date and potential late fees, as well as the interest you have paid during the current year and the monthly payment required to pay off the existing balance. Statements must also warn consumers about the costs of making only the minimum payments. Requires credit card issuers to post their standard card agreements on the internet. Sets a consistent due date for card payments each month. If the due date falls on a holiday or weekend, the deadline is considered the next business day. Restricts the penalties that card issuers can charge for going over the credit limit. Prohibits card issuers from issuing cards to consumers under 21 unless they have a cosigner or can demonstrate that they have independent means to repay the card debt.

Up-Front Cash

Many lenders believe you have a higher stake in repaying a loan if you pay cash for a large portion of what you are financing. Doing so may give you a better chance of getting the other terms you want. Of course, by making a large down payment, you forgo interest that you might earn in a savings account

escrow account

Money, usually deposited with the lending financial institution, for the payment of property taxes and homeowner's insurance.

credit rating during the dispute

Once you have written about a possible error, a creditor is prohibited from giving out information that would damage your credit reputation to other creditors or credit bureaus. And until your complaint has been answered, the creditor may not take any action to collect the disputed amount.

Chapter 7 bankruptcy

One type of personal (or straight) bankruptcy in which many debts are forgiven. ;person filing for relief under the bankruptcy code is called a debtor; the term bankrupt is not used. must provide in application: A list of all creditors and the amount and nature of their claims. The source, amount, and frequency of the debtor's income. A list of all the debtor's property. A detailed list of the debtor's monthly expenses. ;does not affect alimony, child support, certain taxes, fines, certain debts arising from educational loans, or debts that the debtor fails to properly disclose to the bankruptcy court.

closed-end credit

One-time loans that the borrower pays back in a specified period of time and in payments of equal amounts. ;Mortgage loans, automobile loans, and installment loans for purchasing furniture or appliances;seller holds title to the merchandise until the payments have been completed

TERM VERSUS INTEREST COSTS N COMPARISON

P 238

EXHIBIT 7-1 SOURCES OF CONSUMER CREDIT

P235

EXHIBIT 7-2 WHAT TO DO IF A DEBT COLLECTOR CALLS

P249

Credit Card Accountability, Responsibility, and Disclosure Act

Places new restrictions on credit card lending and eliminates certain fees.

Consumer Credit Reporting Reform Act

Places the burden of proof for accurate credit information on the credit reporting agency.

Fair Credit Reporting Act

Regulates the use of credit reports, requires the deletion of obsolete information, and gives consumers access to their files and the right to have erroneous data corrected.

Fair Credit Billing Act (FCBA)

Sets procedures for promptly correcting billing mistakes, refusing to make credit card payments on defective goods, and promptly crediting payments.

travel and entertainment card

T&E cards are really not credit cards, because the monthly balance is due in full. However, most people think of Diners Club or American Express cards as credit cards because they don't pay the moment they purchase goods or services

adjusted balance method

The assessment of finance charges after payments made during the billing period have been subtracted.

character

The borrower's attitude toward his or her credit obligations.

capacity

The borrower's financial ability to meet credit obligations.

conditions

The general economic conditions that can affect a borrower's ability to repay a loan. ; job/company security

annual percentage rate (APR)

The percentage cost (or relative cost) of credit on a yearly basis. The APR yields a true rate of interest for comparison with other sources of credit.

refinancing

The process of obtaining a new mortgage on a home to get a lower interest rate and payment.

amortization

The reduction of a loan balance through payments made over a period of time.

finance charge

The total dollar amount paid to use credit.

consumer credit

The use of credit for personal needs (except a home mortgage).

PROTECTION UNDER CONSUMER CREDIT LAWS

Truth in Lending and Consumer Leasing Equal Credit Opportunity Act Fair Credit Billing Act Fair Credit Reporting Act Consumer Credit Reporting Reform Act Credit Card Accountability, Responsibility and Disclosure Act. p218

interest-only mortgage

allows a home buyer to have lower payments for the first few years of the loan. During that time, none of the mortgage payment goes toward the loan amount. Once the initial period ends, the mortgage adjusts to be interest-only at the new payment amount. Or a borrower may obtain a different type of mortgage to start building equity. Remember, with an interest-only mortgage, higher payments will occur later in the loan.

most desirable improvements

are energy-efficient features, a remodeled kitchen, an additional or remodeled bathroom, added rooms and storage space, a finished basement, a fireplace, and an outdoor deck or patio

WHO PROVIDES DATA TO CREDIT BUREAUS?

banks, finance companies, merchants, credit card companies, and other creditors

debt payments-to-income ratio

calculated by dividing your monthly debt payments (not including house payment, which is a long-term liability) by your net monthly income. Experts suggest that you spend no more than 20 percent of your net (after-tax) income on consumer credit payments

debt-to-equity ratio

calculated by dividing your total liabilities by your net worth

WHAT CREDITORS LOOK FOR: THE FIVE Cs OF CREDIT MANAGEMENT

character, capacity, capital, collateral, and conditions

three types of credit insurance:

credit life, credit accident and health, and credit property

LO 9-5

develop a strategy for selling a home

medium-priced loans

from commercial banks, federal savings banks (savings and loan associations), and credit unions

advantages of credit

immediate possession, convenience, 50 day float, safety, ocmpanies offer rebates cc benefits:Accidental death and dismemberment insurance when you travel on a common carrier (train, plane, bus, or ship), up to $250,000. Worldwide auto rental collision damage waiver (CDW) for damage due to collision or theft for $50,000 or more. Roadside dispatch referral service for emergency roadside assistance, such as towing, locksmith services, and more. Redeem your points or miles for gift cards, cash, or to book travel—from airfare, hotels, and rental cars to vacation packages. Damage and theft purchase protection if your purchases are damaged or stolen within 120 days of purchase. Some cards, such as Capital One, don't charge foreign transaction fees.

add-on interest method,

interest is calculated on the full amount of the original principal P241 FORMULA

revolving line of credit

is an arrangement whereby borrowings are permitted up to a specified limit and for a stated period, usually 5 to 10 years.

variable interest rate

is based on fluctuating rates in the banking system, such as the prime rate. With this type of loan, you share the interest rate risks with the lender. Therefore, the lender may offer you a lower initial interest rate than it would with a fixed-rate loan

AVOID "minimum monthly payment" TRAP

is the smallest amount you can pay and still be a cardholder in good standing. Banks often encourage you to make the minimum payment

declining balance method

more than one payment is made on a simple interest loan,

short sale

occurs when the new selling price is less than the amount owed on a previous mortgage. This alternative to foreclosure can result in a "bargain" for a home buyer. However, beware that it may take a long time before the lender accepts the offer, if the offer is accepted at all. Also, the home is usually sold "as is," which means some items expected to be in the home may be missing or damaged. When doing a short sale, be sure to use a lawyer and a negotiator, and obtain a release from any deficiencies for previous loan amounts`

exhibit 6-11 federal government agencies that enforce consumer credit laws

p223

exhibit 9-10 types of mortgages

pic

exhibit 9-11 common closing costs

pic

exhibit 6-1 examples of closed end and open end credit

pic18

exhibit 6-3 how to calculate debt payments-to-income ratio

pic20

step 3

price property

ADVANTAGES OF BORROWING FROM CREDIT UNION

provide free credit life insurance, are generally sympathetic to borrowers with legitimate payment problems, and provide personalized service. Credit unions can now offer the same range of consumer loans that banks and other financial institutions do.

SHORTER TERM

shorter the period of time for which you borrow, the smaller the chance that something will prevent you from repaying and the lower the risk to the lender. Therefore, you may be able to borrow at a lower interest rate if you accept a shorter-term loan, but your payments will be higher.

alternative counseling services

universities, military bases, credit unions, local county extension agents, and state and federal housing authorities sometimes provide nonprofit counseling services. These organizations usually charge little or nothing for such assistance. You can also check with your local bank or consumer protection office to see whether it has a listing of reputable, low-cost financial counseling services. ;American Consumer Credit Counseling. Visit www.consumercredit.com or call 1-800-769-3571. Financial Counseling Association of America. Visit fcaa.org or call 1-866-797-2891. InCharge Institute of America. Visit www.incharge.org or call 1-800-565-8953. Money Management International. Visit www.moneymanagement.org or call 1-866-889-9347.

complaints about banks

you may get advice and help from the Federal Reserve System. You don't need to have an account at the bank to file a complaint

WHAT IS IN YOUR CREDIT FILES?

your name, address, Social Security number, and birth date. It may also include: Your employer, position, and income. Your former address. Your former employer. Your spouse's name, Social Security number, employer, and income. Whether you own your home, rent, or board. Checks returned for insufficient funds.

Unit pricing

Uses a standard unit of measurement to compare the prices of packages of different sizes; divide price by number of units (oz,lbs,gal..)

Leasing

a contractual agreement with monthly payments for the use of an automobile over a set time period, typically three, four, or five years. At the end of the lease term, the vehicle is usually returned

warranty

a written guarantee from the manufacturer or distributor that specifies the conditions under which the product can be returned, replaced, or repaired

service contracts

agreements between a business and a consumer to cover the repair costs of a product. Frequently called extended warranties, they are not warranties. For a fee, these agreements protect the buyer from high servicing costs resulting from certain repairs and other losses. Beware of service contracts that offer coverage for three years but really only cover two since the item has a manufacturer's one-year warranty.

LO 9-4

Calculate the costs associated with purchasing a home

used car warranties

Federal Trade Commission (FTC) requires businesses that sell used cars to place a buyer's guide sticker in the windows of cars for sale. This disclosure must state whether the car comes with a warranty and, if so, what protection the dealer will provide. If no warranty is offered, the car is sold "as is" and the dealer assumes no responsibility for any repairs, regardless of any oral claims ;most come without a warranty

zoning laws

Restrictions on how the property in an area can be used.

Brand comparison

Store brand and private label products local alternatives to famous name products

Chapter 9

The Housing Decision: Factors and Finances

mediation

The attempt by an impartial third party to resolve a difference between two parties through discussion and negotiation.

selecting a lawyer

Is the lawyer experienced in your type of case? Will you be charged on a flat fee basis, at an hourly rate, or on a contingency basis? Is there a fee for the initial consultation? How and when will you be required to make payment for services?

points

Prepaid interest charged by a lending institution for the mortgage; each discount point is equal to 1 percent of the loan amount.

LO 9-1

Evaluate available housing alternatives

Automobile Operation Costs

Fixed Ownership Costs - Depreciation - Interest on Auto Loan - Insurance - License, Registration, Taxes & Fees Variable Operating Costs - Gasoline & Oil - Tires - Maintenance & Repairs - Parking & Tolls The largest fixed expense associated with a new automobile is depreciation, the loss in the vehicles value due to time & use. Well-maintained vehicles & certain high-quality, expensive models, such as BMW & Lexus, depreciate at a slower rate.

exhibit 9-1

Housing for different life situations pic 8

exhibit 8-4 checking out a used car

pic 4

exhibit 8-5 extend vehicle life with proper maintenance exhibit 8-6 common auto repair scams

pic 5

exhibit 8-8 sample complaint email

pic 7

drawbacks of leasing include

(1) no ownership interest in the vehicle; (2) a need to meet requirements similar to qualifying for credit; and (3) possible additional costs incurred for extra mileage, certain repairs, turning the car in early, or even a move to another state

determine how much you can afford

1. price and downpayment (down payment, your income, and your current living expenses;current mortgage rates, the potential future value of the property, and your ability to make monthly mortgage, tax, and insurance payments) 2. size and quality:

LO 8-3

determine steps to take to resolve consumer problems exhibit 8-7 pic6

lease

legal document that defines the conditions of a rental agreement.

Seller's Market

times of high demand for housing, negotiating may be minimized

buyer's market exists

when home sales are slow and prices are low

legal aid society

is one of a network of publicly supported community law offices that provides legal assistance to people who cannot afford their own attorney; provide this assistance at a minimal cost or without charge.

single family dwellings:

detached homes, include previously owned houses, new houses, and custom-built houses.

determining downpayment

Private mortgage insurance (PMI): required if down paymen tis less than 20%

comparison shopping

Process of considering alternative stores brands and prices

Two factors for effective negotiation are

(1) having all the necessary information about the product and buying situation and (2) dealing with a person who has the authority to give you a lower price or additional features, such as the business owner or store manager

selecting vehicle options

(1) mechanical devices to improve performance, such as a larger engine; (2) convenience options, including power seats, air conditioning, sound systems, power locks, and tinted glass; and (3) aesthetic features that add to the vehicle's visual appeal, such as metallic paint, special trim, and upholstery.

before making a purchase:

(1) obtain recommendations from friends, family members, and online reviews; (2) verify company affiliations, certifications, and licenses; and (3) understand the sale terms, return policies, and warranty provisions.

disadvantages of renting

1. few financial benefits: tax deductions for mortgage interest and property taxes or benefit from the potential increased value of real estate. They are also subject to rent increases over which they may have little control 2. restricted lifestyle: limited on activities, ent systems, monitoring, decorating etc 3. legal details: sign a leaseee

automobile servicing sources

Car dealers, which provide a service department with a wide range of car care services. Charges for vehicle servicing at a car dealer are usually higher than those of other repair businesses. Independent auto repair shops, which can service your vehicle at fairly competitive prices. Since the quality of these repair shops can vary, talk with previous customers and view online reviews. Mass merchandise retailers, which may emphasize the sale of tires and batteries, as well as brakes, oil changes, and tune-ups. Specialty shops that offer brakes, tires, automatic transmissions, and oil changes at a reasonable price with fast service.

Timing purchases

Certain items go on sale the same time each year; buying calendar

Label information

Certain label information is helpful; however, other information is nothing more than advertising. Federal law requires that food labels contain the company name and address, ingredients, nutrients & food allergy warnings. Product labeling for appliances includes information about operating costs, to assist you in selecting the most energy-efficient models.

Chapter 8

Consumer Purchasing Strategies and Legal Protection

open dating

Describes a freshness or shelf life of a perishable product

questionable sales techniques used in the past include:

Lowballing, when quoted a very low price that increases when add-on costs are included at the last moment. Highballing, when offered a very high amount for a trade-in vehicle, with the extra amount made up by increasing the new-car price. When asked "How much can you afford per month?" be sure to also ask how many months. "A small deposit will hold this vehicle for you." Never leave a deposit unless you are ready to buy a vehicle or are willing to lose that amount. "Your price is only $100 above our cost." However, many hidden costs may have been added in to get the dealer's cost. Beware of sales agreements with preprinted amounts. Cross out numbers you believe are not appropriate for your purchase.

oral leases

Most leases are written, but oral leases are also valid. With an oral lease, one party must give a 30-day written notice to the other party before terminating the lease or imposing a rent increase

class-action suit

legal action taken by a few individuals on behalf of all the people who have suffered the same alleged injustice.

using a lawyer

most common sources of available lawyers are personal referrals, the local branch of the American Bar Association, and an online search ;complicated matters, such as writing a will, making a real estate purchase, or suing for injury damages caused by a product, obtaining the services of an attorney is usually recommended.

Exhibit 9-8 housing affordability/ mortgage qualification amounts

pic 15 (a) the monthly mortgage payment you can afford, (b) the mortgage amount you can afford, and (c) the home purchase price you can afford.

exhibit 8-3 research based approach for purchasing a motor vehicle

pic 3

lease includes..

A description of the property, including the address. The name and address of the owner/landlord (the lessor). The name of the tenant (the lessee). page 318 The effective date of the lease. The length of the lease. The amount of the security deposit. The amount and due date of the monthly rent. The location where the rent payment is to be sent. The date and amount due of charges for late rent payments. A list of the utilities, appliances, furniture, or other facilities that are included in the rental amount. The restrictions regarding certain activities (pets, remodeling). The tenant's right to sublet the rental unit. The charges for damages or for moving out of the rental unit later (or earlier) than the lease expiration date. The conditions under which the landlord may enter the apartment.

mortgage

A long-term loan on a specific piece of property such as a home or other real estate.

negotiating a lease

Standard lease forms include conditions you may not want to accept. The fact that a lease is printed does not mean you must accept it as is. If you have a high credit score, you may be able to negotiate a lower rent or a reduced security deposit. Also, discuss with the landlord any lease terms you consider unacceptable.

Impulse buying

Unplanned purchasing which can result in financial problems

LO 9-2

analyze costs and benefits associated with renting

major factors that affect the affordability of your mortgage

are your income, other debts, the amount available for a down payment, the length of the loan, and current mortgage rates.

exhibit 9-7

components of a home purchase agreement pic 14

contingency clause

condition states that the agreement is binding only if a certain event occurs. For example, a real estate contract may stipulate that the contract will not be valid unless the buyer obtains financing for the purchase within a certain period of time, or it may make the purchase of a home contingent on the sale of the buyer's current home.

exhibit 9-6

conducting a home inspection pic13

exhibit 9-2

evaluating housing alternatives pic9

LO 9-3

explain the home buying process

housing construction

factory built, prefabricated, modular, etc, mobile/manufactured homes

advantages of renting

mobility, fewer responsibilities, lower initial costs

Multiunit dwellings:

more than one living unit ; duplex is a building that contains two housing units, with each usually owned by a different homeowner. Town houses are buildings with two, four, or six single-family living units. These attached housing options involve land ownership, in contrast to a condominium. Planned unit developments (PUDs) are designed communities with varied housing (detached homes and town houses) and other land use, such as recreational facilities, a commercial center, shopping areas, and an industrial park. PUDs will likely have a homeowners association to maintain commonly owned land areas and facilities.

New-car warranties

provide buyers with an assurance of quality. ;vary in the time, mileage, and parts they cover Main conditions of a new-car warranty: (1) coverage of basic parts against defects (2) power train coverage for the engine, transmission, and drive train; and (3) the corrosion warranty, which usually applies only to holes due to rust, not to surface rust. Other important conditions include whether the warranty is transferable to other owners of the car and details about the charges, if any, that will be incurred for major repairs, in the form of a deductible.

exhibit 9-4

selecting an apartment pic 11

Rebates

Partial refund

exhibit 8-2

wise online buying activities pic 2

when choosing a contractor you should consider:

-Does the contractor have the experience needed for the type of building project you require? -Does the contractor have a good working relationship with the architect, material suppliers, electricians, plumbers, carpenters, and other personnel needed for the project? -What assurance do you have about the quality of materials? -What arrangements are required for payments during construction? -What delays in the construction process will be considered legitimate? -Is the contractor licensed and insured? -Is the contractor willing to provide names, addresses, and phone numbers of satisfied customers? -Have local consumer agencies received any complaints about this contractor? -Does the written contract include a time schedule, cost estimates, a description of the work, and a payment schedule?

Opportunity costs of housing choices

-Lost earnings from interest on the money used for a down payment on a home or the security deposit for an apartment. -The time and cost of commuting to work when you live in an area that offers less expensive housing or more living space. -Loss of home-buying tax advantages and equity growth when you rent an apartment to be close to your work. -The time and money you spend when you repair and improve a lower-priced home. -The time and effort involved when you have a home built to your personal specifications.

When price comparing remember

-More store convenience (location, hours, sales staff) usually means higher prices. -Ready-to-use products have higher prices. -Large packages are usually the best buy; however, compare using unit pricing. -"Sale" may not always mean saving money.

personal consumer protection

1) do bushiness only with reputable companies with a record of satisfying customers 2) avoid signing contracts and other documents you do not understand 3) be cautious about offerings that seem too good to be true 4) compare the cost of buying on credit with the cost of paying cash; also compare interest rates 5) avoid rushing to get a good deal

Assess types of housing

1)single family dwellings 2)Multiunit dwellings 3) Condominiums 4) cooperative housing

deciding on interest n points

1. Determine the dollar difference between the monthly payments you will make for the two different situations. 2. Determine the difference between the points charged for the two different rates or at two different lenders. 3. Divide the result in step 2 by the result in step 1. This will tell you the break-even point of how many months it will take for the lower monthly payment to offset the higher cost of the points.

true cost

1. The capitalized cost, which is the price of the vehicle. The average car buyer pays about 92 percent of the list price for a vehicle; the average leasing arrangement has a capitalized cost of 96 percent of the list price. 2. The money factor, which is the interest rate being paid on the capitalized cost. 3. The monthly payment and number of payments. 4. The residual value, which is the expected value of the vehicle at the end of the lease.

cooperative housing

:form of housing in which a building containing a number of housing units is owned by a nonprofit organization whose members rent the units. ;shareholders purchase stock to obtain the right to live in a unit in the building. While the residents do not own the units, they have the legal right to occupy a unit for as long as they own stock in the cooperative association. The title for the property belongs to the co-op. This ownership arrangement is different from condominiums, in which residents own their individual living units

condominium

An individually owned housing unit in a building with several such units. ;Individual ownership does not include the common areas, such as hallways, outside grounds, and recreational facilities. These areas are owned by the condominium association, which is run by the people who own the housing units. The condominium association oversees the management and operation of the housing complex. Condominium owners are charged a monthly fee to cover the maintenance, repairs, improvements, and insurance for the building and common areas. A condominium is a legal form of home ownership

20 something Finances suggest

Don't buy an item right away, delay a purchase to consider the value. Review delayed purchases after a month does the urge to buy still exist, and is the money available?. Return items, as allowed, when the purchase does not meet expectations

LO 8-4

Evaluate legal alternatives available to consumers

LO 8-1

ID Strategirs for effective consumer buying

comparing used vehicles

New-car dealers offer late-model vehicles and may give you a warranty, which usually means higher prices than at other sources. Used-car dealers usually have older vehicles. Warranties, if offered, will be limited. However, lower prices may be available. Individuals selling their own cars. These cars can be a bargain if the vehicle was well maintained. Few consumer protection regulations apply to private-party sales. Caution is suggested. Auctions and dealers sell automobiles previously owned by businesses, auto rental companies, and government agencies. Used-car superstores, such as CarMax, offer a large inventory of previously owned vehicles. Online used-car businesses, such as www.carvana.com and www.autotrader.com.

Cooperative

Nonprofit organization whose member-owners save money on various products and services; Organized for by less expensive child care, recreational equipment, healthcare, cable television, and burial services

AVOIDING LEASE TRAPS

Not knowing the total cost of the agreement, including the cost of the vehicle, not just the monthly payment. Making a larger up-front payment than is required or paying unnecessary add-on costs. Negotiating the monthly payment rather than the capitalized cost of the vehicle. Not having the value of any trade-in vehicle reflected in the lease. Signing a contract you don't understand.

Commonly overlooked trade-offs when buying include...

Paying a higher Amount overtime when buying on credit for an item you need now. Buying unknown, possibly poor quality brands that are less expensive.Buying online which saves time and money but make it difficult to return replace or repair purchases. Taking time and effort to comparison-shop to save money and obtain better after sales service.

information gathering

Personal contacts, such as family, friends, and others, can provide information about product performance, brand quality, and prices. Business organizations offer advertising, product labels, and packaging with basic facts about price, ingredients, quality, and availability. Media sources (television, radio, newspapers, magazines, websites, apps) offer purchase location availability, prices, shopping suggestions, and product reviews from other consumers. Independent testing organizations, such as Consumers Union (publisher of Consumer Reports), report the quality of products and services. Underwriters Laboratories (UL) tests products for electrical and fire safety to assure items meet safety standards. Government agencies, at the local, state, and federal levels, provide information sources, complaint hotlines, and educational programs. The appendix for this chapter provides contact information for government agencies.

arbitration

The settlement of a difference by a third party whose decision is legally binding.

real estate agent

(1) presenting your offer to the seller, based on current market conditions, (2) negotiating a settlement price, (3) assisting in obtaining financing, and (4) attending the closing to provide guidance. A real estate agent will also recommend lawyers, insurance agents, home inspectors, and mortgage companies to serve your needs

drawbacks of home ownership

1. Financial uncertainty. Among the financial uncertainties associated with buying a home is obtaining money for a down payment. Qualifying for mortgage financing may be a problem due to your personal situation or current economic conditions. Finally, changing property values in an area can affect your financial investment. 2. Limited mobility. Home ownership does not provide ease of changing living location as with renting. If changes in your situation make it necessary to sell your home, doing so may take time. High interest rates and other factors can result in a weak demand for housing. 3. Higher living costs. Owning your place of residence can be expensive. As a homeowner, you are responsible for maintenance and costs of repainting, repairs, and home improvements.

small claims court

A court that settles legal differences involving amounts below a set limit and employs a process in which the litigants usually do not use a lawyer. ;maximum varies from state to state, ranging from $500 to $25,000; most states have a limit of between $5,000 and $10,000

earnest money

A portion of the price of a home that the buyer deposits as evidence of good faith to indicate a serious purchase offer.

express warranty

usually in written form, is created by the seller or manufacturer and has two forms: 1. the full warranty (a defective product can be fixed or replaced during a reasonable amount of time.) and 2. the limited warranty (covers only certain aspects of the product, such as parts, or requires the buyer to incur part of the costs for shipping or repairs.)

application process

1. Prequalification, which involves completing the mortgage application. The borrower presents evidence of employment, income, ownership of assets, and amounts of existing debts. The lender obtains a credit report and verifies other aspects of the borrower's application and financial status. A decision to approve or deny the mortgage is made, indicating the maximum mortgage for which the borrower qualifies. When applying for a mortgage, the borrower will receive a loan estimate. This form, required by the Consumer Financial Protection Bureau, provides a summary of key information to help the borrower decide among various loans being offered. 2. Fee payment and obtain commitment. At this point, lenders will likely charge a fee that may be as high as $500. The loan commitment is the decision to provide the funds to purchase the home, which is when the purchase contract becomes legally binding. The borrower decides whether to lock in an interest rate for 30-90 days; or, if he or she believes rates may drop, the borrower may float, locking in the rate at a later point in time. 3.Finding a property that you desire to purchase. An appraisal of the home occurs to determine the value based on location, features, and condition.

benefits of home ownership

1. Pride of ownership: Having a place to call their own is a primary motive of many home buyers. Stability of residence and a personalized living location can be important. 2. Financial benefits. One financial benefit is the deductibility of mortgage interest and real estate tax payments for federal income taxes. Another benefit is potential increases in the value of the property. Finally, homeowners in most states may be able to borrow against the equity in their homes. Equity is the home value less the amount owed on the mortgage. 3. Lifestyle flexibility. While renting gives you mobility, home ownership gives you more opportunity to express individuality. Homeowners have greater freedom than renters for decorating their dwellings and entertaining guests.

security deposits

:money is held by the landlord to cover the cost of any damages done to the rental unit during the lease period. The security deposit is usually one month's rent. However, you may be required to also pay the first and last month's rent before being allowed to move in Several state and local governments require that the landlord pay interest on a security deposit

Advantages of leasing a vehicle

(1) only a small cash outflow may be required for the security deposit, whereas buying can require a large down payment; (2) monthly lease payments are usually lower than monthly financing payments; (3) the lease agreement provides detailed records for business purposes; and (4) you are usually able to obtain a more expensive vehicle, more often