Finance chap 8
What is the goal of comparison shopping?
The goal of comparison shopping is to determine the best buy. This means the product that provides acceptable quality at a low price. Comparison shopping requires that you obtain information from several sellers.
What three aspects of a vehicle purchase should be negotiated? In what order?
The three key areas of negotiation are the price of the vehicle, the APR on the financing, and the value of any trade-in. They should be negotiated in that order. Never tell a seller your affordable monthly payment. Insist that sellers give you a price before you tell them what you can afford or are willing to pay or whether or not you have a vehicle you wish to trade in.
Outline the steps to go through to seek redress.
The word redress means righting a wrong. For example, a person who was injured by an unsafe product might receive redress through monetary compensation. The consumer complaint procedure includes taking your complaint to (a) the local business, (b) the manufacturer, (c) self-regulatory organizations, (d) consumer-action agencies, and (e) small claims or civil court. It is important to begin your complaint with the local business before moving to other channels.
Explain why lease payments for a new vehicle are lower than loan payments for the same vehicle.
Lease payments are generally less than auto loan payments because you are paying for only the reduction in the car's value over the period of the lease and not its total value.
Why should you make major purchase decisions at home?
Making major decisions at home serves two purposes. First, you are away from the persuasive power of the dealer showroom and the salesperson's efforts to close the sale quickly. Second, you have a better opportunity to rethink through all the variables in a time frame of your own control.
Summarize the FTC's cooling-off rule to cancel a contract.
The FTC Rule allows a 3-day window during which you may cancel a contract for a purchase of $25 or more if the sale occurred away from the seller's usual place of business such as the buyer's home, a hotel, or dormitory. The purchaser may cancel for any reason including a simple change of heart. The rule does not apply to mail order or on-line purchases, purchases needed in an emergency, real estate, insurance or investment securities.
Describe the relationships among capital cost, capital cost reductions, and residual value in a lease.
The capital cost of a lease includes the price of the car, plus any cost to the dealer to finance the purchase, plus anything else that you as the lessor agree to pay over the life of the lease, such as insurance or a maintenance agreement. Capital cost reductions are payments at the inception of a lease, such as down payments, trade-in values, or rebates. The residual value is the projected value of a leased asset at the end of the lease period.
Summarize the process to determine whether you can afford a particular purchase.
The first step is to determine if you will need to finance the purchase. If so, you will want to estimate the likely interest rate and resulting monthly payment. Then you will need to fit the payment into your monthly budget. For cash purchases, you will want to determine the opportunity cost of the funds you will use.
Summarize how to use a decision-making grid.
A decision grid is designed to add numerical value to the various criteria that you have set for your purchase, put a weight on those criteria, and then give a score for each criterion for each alternative product. By multiplying the weight times the score and then arriving a total score for each alternative, you can determine which one is the overall best option.
Distinguish between needs and wants, and explain why it may be better to act as if no needs exist.
A need is something that is considered a necessity, such as food, housing, and clothing. A want is desired but not necessary. Wants may include certain options on an automobile or a certain brand or style of clothing. Acting as though no needs exist makes everything a want. Then all wants will have to be prioritized as it is impossible to buy everything. By not calling something a need, one is not automatically making the decision to buy it.
What is an extended warranty? What is a disadvantage of such a contract?
An extended warranty (or service contract) provides free or nearly free repair services on covered product components for a specified period of time. This can limit the number of unexpected expenses one has to include in his or her budget and provides peace of mind. The primary disadvantage is that a service contract may (and generally does) cost more than the value of the repairs received over the covered period of time. Economically, service contracts are almost always unwise purchases.
Explain the difference between an implied warranty and an express warranty. How do they relate to the term as is?
An implied warranty ("warranty of merchantability" or "warranty of fitness for a particular purpose") provides that products sold are suitable for sale and will work effectively whether there is a written warranty or not. An express warranty, which can be full or limited, always accompanies a product in writing and is offered by a manufacturer on a voluntary basis to induce customers to buy that product. Implied warranties are required by state law. To avoid them, the seller can state in writing that the product is sold as is. If you buy any product "as is," you have little legal recourse should it fail to perform, even if the salesperson made verbal promises to take care of any problems.
How do lemon laws work?
Essentially, lemon laws describe the criteria by which an arbitrator can order a manufacturer to buy back a vehicle.
Distinguish between mediation and arbitration.
Mediation is an alternative (to the courts) dispute resolution mechanism where a neutral third party works with the two parties to the dispute to help them arrive at a satisfactory solution. Arbitration is similar except that the neutral third party will issue a decision that is binding on at least one of the two parties to the dispute.
What is planned buying?
Planned buying involves defining a purchasing process, identifying personal needs and wants in the context of personal values and goals, identifying alternatives through preshopping research and the realities of your budget, comparison shopping, negotiating for and selecting the best alternative, and accepting and evaluating the action.
Describe the types of information you need to be your own expert when making big-ticket purchases.
Price, knowledge of product features, information about the cost of financing, and the value of any trade-in are key areas of knowledge that allow buyers to do a better job of interacting with sellers and get a best buy. All of this information should be obtained before interacting with sellers.
List some of the complexities in vehicle buying and offer your advice on how to get a best buy.
Vehicle buying is complex because the product itself is complex. There are many makes and models to choose from and many different choices among optional equipment. In addition, there is the complexity of the financing arrangements and how to handle a trade-in. The key to success is to break the decision down into the various components and focus on each aspect separately beginning with the actual price of the vehicle. Preshopping research is key so that you go into the comparison-shopping phase armed with accurate, unbiased information.
