MYM 6.1a: Factors that Influence Buying Decisions

When weighing alternatives, what are three steps you should look to take?

Identify What is Important To You (product quality vs. cost), Compare Prices, and Do Comparison Shopping (Read reviews).

What are three steps that you should do Before You Shop?

Identify your Needs, Gather Information/Research, and Be Aware of the Marketplace (price range/manufacturers).

Bottom line: when would leasing be right for you?

If you do not drive very much

In the first years of owning a car, the majority of your monthly car payment goes towards what?

Interest

Every dollar that you spend should be seen as an

Investment

If your objective is to drive a new set of wheels every few years and to minimize your monthly costs, which option is better, leasing or buying?

Leasing a car

Who are sources that you can gather information from to help with purchasing decisions?

People you know, ads and packaging, media reports, independent testing organization reports, and product websites.

Knowledge is __________

power

People often view the automobiles as a ______________, and therefore pay more than what is necessary for transportation.

status symbol

What are the three encompassing factors that influence your purchasing decisions?

Economic, Social, and Personal factors

What factors do you need to take into consideration when purchasing a vehicle?

Gasoline, maintenance, insurance, license and registration, parking and toll fees, loan finance charges and depreciation costs.

What are examples of personal factors that have an influence on purchasing decisions?

Gender, Age, Occupation, Income, Education, Family size, Geographic location, Ethnic background, Religion

If your objective is to one day be rid of car payments and you actually want ownership, which option is better, leasing or buying?

Buying a car

How can you minimize any surprise costs?

By being aware of clauses for charges on excess wear and tear or above-average costs for additional mileage.

What type of asset is an automobile?

Depreciating

About how much will paying cash save you in finance charges on a $25,000 vehicle?

$3,100

How much do you typically pay per mile as a penalty for going over your allotted miles?

10 to 25 cents

What is the typical range of mileage limit per year on a lease?

12,000 to 15,000 miles

How much do new cars usually depreciate over the first couple of years?

20-40%

What percent of savings would you gain in overall costs of owning and operating if you bought a small sedan instead of an SUV?

30%

How long are typical leases?

36-48 months

What is a down payment?

A portion of the total cost of an item that must be paid at the time of the purchase.

In order to lose less money, what type of automobile should you look buy?

A used car still under warranty

What answer would receive from an investment broker when you ask the question of "how much money can I make on this vehicle investment?"

Almost a 100% chance that you would make nothing and that you would actually lose at least half of your investment or more.

What does is mean for an asset to be depreciating?

As something ages, it loses value rapidly and drastically

Why is the closed-end lease considered the best lease option?

Because is poses less risk upon the expiration of the term.

Why do you not build a lot of equity in a car that you owe money on?

Because the car value depreciates dramatically, and the monthly payments have gone mostly towards interest

Why should you have a trained mechanic conduct a used-car inspection?

Because the exterior may not match the operational (shiny, but doesn't run well)

What are the four phases of a research-based approach to buying?

Before you Shop, Weighing the Alternatives, Making the Purchase, After the Purchase

What are examples of public transportation that you could look into?

Buses, trains, subways, and van pools

Who normally uses an open-end lease?

Businesses or individual who drive a lot

What is caveat emptor?

Let the buyer beware

What are examples of social factors that have an influence on purchasing decisions?

Lifestyle, Interests, Hobbies, Friends, Culture, Advertisements, Media (magazines, radio, television, newspapers)

What are the benefits of leasing a vehicle instead of buying?

Lower monthly costs, low or no down payment, no upfront sales tax charges, monthly payments are lower, and can drive a new car every few years.

With a lease, you typically pay for the...

Most expensive years of a vehicles life

What are some activities that you should when making the purchase?

Negotiate the price, compare financing options (credit vs. cash/interest rates and fees), and find out the real price (warranty/delivery and installation fees).

What factors influence the price of a used car?

Number of miles, features, and options

How much is it estimated that it would cost you over 5 years to drive a $25,000 vehicle?

Over $30,000

According to the US Bureau of Labor Statistics, what does the average vehicle cost to own and operate per year?

Over $9,000

What are examples of economic factors that have an influence on your purchasing decisions?

Prices, Interest rates, Product quality, Supply and demand, Convenience, Product safety, Brand name, Maintenance costs, Warranty

What two items do you pay when making a monthly car payment?

Principal and interest

With a lease, you are essentially...

Renting a car for a fixed amount of time.

What are the two main factors that influence driving costs?

Size of your vehicle and the number of miles that you drive

What costs should you evaluate before deciding to use credit for a purchase?

Source of the loan, type of credit account, payment period, and amount of down payment

What are you really paying for in a lease?

The depreciation of the car for the period that you are leasing it.

What is the amount that you pay to lease?

The difference between the purchase price and the residual value

What is marginal benefit?

The increase or decrease of the benefit of the action.

What is marginal cost?

The increase or decrease of the cost of a particular action.

What does amortized mean?

The paying off of a debt, over time, in regular installments of interest and principal adequate enough to repay the loan in full by maturity.

What is the residual value of a vehicle?

The value of a vehicle at the end of a lease period that the dealer establishes at the time of the lease signing.

A lease will never put you in an...

Upside-down situation

What does a closed-end lease allow you to do?

Walk away at the end of the lease after paying for any extra mileage or additional wear and tear.

What is an "upside-down" situation?

When a car becomes worth less than what the buyer still owes on it.

In regards to marginal cost and benefit, when would you make the decision to buy an item?

When the marginal benefit exceeds the marginal cost

When are there tax advantages to leasing?

When you are a business owner and use the vehicle for business purposes

When, financially, should you buy a automobile?

When you can pay cash for it.

What are the requirements of an open-end (or equity) lease?

You must purchase the car at the end of the lease period for a predetermined amount

What are the benefits of buying a vehicle instead of leasing?

You will actually own it one day, someday you will not have to worry about a car payment, it will be yours to sell, not locked into an ownership period, insurance premiums are lower, unlimited mileage

What are some additional factors that you should consider before making a potential purchase?

Your Personal Values, Time Available for Research, Convenience of Purchase, and Pros and Cons of the Manufacturer.

What does depreciation mean?

an accounting method of allocating the cost of a tangible asset over its useful life and is used to account for declines in value.