Personal Finance Exam 3

Highballing

Offered a very high amount for a trade-in vehicle, with the extra amount made up by increasing the new-car price.

Considerations for Renting vs Buying

- Lifestyle - Should spend no more than 25 to 30% of your take-home pay on housing - House should cost about 2.5 times your annual income

selection and purchase

- Negotiation activities to obtain lower price or added quality. - Payment alternatives including use of cash and various credit plans. - Assessment of acquisition and installation that might be encountered.

preshopping activities

- Problem identification to set a goal and focus your purchasing activities. - Information gathering to benefit from the buying experiences of others.

Preshopping activities for car

- Problem indentification: don't have a narrow view of the problem. You don't have a need for a car but rather a need for transportation. - Information gathering: gather information from personal contacts, business organizations, media, independent testing organizations, government agencies or online sources for product performance, quality and price information.

post purchase activities

- Proper maintenance and operation. - Identification and comparison of after-sale service alternatives. - Resolution of any purchase concerns that may occur.

Find and Evaluate a Property to Purchase

- Select a location. - Consider using a real estate agent. - Conduct a home inspection.

Advantages of Renting

- easy to move - fewer responsibilities for maintenance - minimal financial commitment - often more affordable for low income earners

Disadvantages to Renting

- no tax benefits - limitations regarding remodeling - restrictions regarding pets

Advantages of Buying

- pride of ownership - financial benefits (HELOC) - lifestyle flexibility (noise not coming from above or below you, may have a yard)

Home buying process

1) Determine Home Ownership Needs 2) Find and Evaluate a Property to Purchase 3) Price the Property 4) Obtain Financing 5) Close the Purchase Transaction

Purchasing a Car

1) Preshopping activities 2) Evaluating alternatives 3) Determining purchase price 4) Postpurchase activities

Suggest steps for resolving consumer complaints

1) Return to the place of purchase 2) Contact the company's main office 3) Obtain assistance from a consumer agency (mediation, arbitration, contact a government agency) 4) Take legal action

Housing rental activities

1) The search (select an area and rental amount; compare costs and facilities of comparable units) 2) Before signing the lease (verify starting date, costs and facilities) 3) Living in rental property (keep facilities in good condition, contact owner regarding repairs, respect the rights of other regarding noise, obtain renter's insurance for personal belongings) 4) At the end of the lease (clean apartment the same as you moved in, tell landlord where to send your security deposit, require that any deductions from your security deposit be documented)

Practical Purchasing Strategies

1) Timing Purchases 2) Store Selection 3) Brand Comparison 4) Label Information 5) Price Comparison

Disadvantages of leasing a car

1) now ownership interest 2) must meet requirements similar to qualifying for credit 3) additional cost may be incurred for extra mileage, certain repairs or turning the car in early

Advantages of leasing a car

1) smaller security deposit when compared to a down payment 2) monthly lease payment are usually lower than monthly financing payments 3) lease agreement provides detailed records 4) usually able to obtain a more expensive vehicle more often

Close the Purchase Transaction

- Arrange a closing date. - Obtain funds and documents for closing. - Request clarification of unclear aspects of the transaction.

evaluating alternatives

- Attribute assessment with a comparison of product features. - Price analysis including consideration of the costs at various buying locations. - Comparison shopping activities to evaluate shopping locations.

Obtain Financing

- Determine amount of down payment. - Investigate the rates and conditions of mortgages. - Apply for mortgage and evaluate types of mortgages.

Price the Property

- Determine an appropriate market price. - Negotiate an agreement price.

Disadvantages to Buying

- financial commitment - higher living expenses - limited mobility

Class action lawsuit

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

small claims court

A person may file a claim involving amounts below a set dollar limit. The maximum varies from state to state, ranging from $500 to $10,000; most states have a limit of between $1,500 and $3,000. The process usually takes place without a lawyer, although in many states attorneys are allowed in small claims court.

warranty

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

service contract

An agreement between a business and a consumer to cover the repair costs of a product. Frequently called extended warranties, for a fee they insure the buyer against losses due to the cost of certain repairs.

price bargaining for new cars

An important new-car price information source is the sticker price label, printed on the vehicle with the suggested retail price. This label presents the base price of the car with costs of added features. The dealer's cost, or invoice price, is an amount less than the sticker price. The difference between the sticker price and the dealer's cost is the range available for negotiation.

Evaluating Alternatives for car

Can I put the purchase off? Should I purchase a new or used car? Should I buy or lease a car?

Car depreciation

Car value depreciates quickly with mileage increase. Car's value also takes a huge hit the second it drive off the lot.

Leasing a motor vehicle

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 the car is returned to the leasing company.

implied warranty

Covers a product's intended use or other basic understandings that are not in writing. For example, an implied warranty of title indicates that the seller has the right to sell the product.

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.

express warranty

Created by the seller or the manufacturer and has two forms; the full warranty and the limited warranty.

personal consumer protection suggestions

Do business only with reputable companies with a record of satisfying customers. Avoid signing contracts and other documents you do not understand. Be cautious about offerings that seem too good to be true—they probably are! Compare the cost of buying on credit with the cost of paying cash; also, compare the interest rates the seller offers with those offered by a bank or a credit union. Avoid rushing to get a good deal; successful con artists depend on impulse buying.

used-car warranties

The Federal Trade Commission requires used cars being sold to have a sticker stating whether or not the car has a warranty. This regulation does not apply to vehicle purchased from private owners. If no warranty is offered the car is being sold as is and the dealer assumes no responsibility for any repairs. However, many states have implied warranties of merchantability guaranteeing the car will do what it is supposed to do for a while to protect used-car buyers.

payment schedule

The amount paid monthly and the number of payments.

residual value

The expected value of the vehicle at the end of the lease.

capitalized cost

The price of the vehicle.

Individual sellers

This can be a bargain if the vehicle was well maintained, but few consumer protection regulations apply to private-party sales. Caution is suggested.

used car price negotiation

Use sites like Kelley Blue Book to find a fair price for a vehicle. Factors such a mileage, age and features are taken into consideration.

Mediation

Using a third party to negotiate a nonbinding agreement

Used-car dealers

Usually have older vehicles. Warranties, if offered, will be limited. However, lower prices may be available.

determining purchase price for car

Utilize negotiation. Two vital factors in negotiation are having all the necessary information about the product and buying situation and dealing with a person who has the authority to give you a lower price or additional feature such as the owner or store manager.

Unrealistic statements

Your price is only $100 above our costs. Usually, hidden costs have been added in to get the dealer's cost.

Determine Home Ownership Needs

- Evaluate owning your place of residence. - Assess types of housing units. - Calculate the amount you can afford.

Automobile operation costs

Fixed Ownership costs: depreciation, interest on auto loan, insurance, license and registration Variable Operating costs: gasoline and oil, tires, maintenance and repairs, parking and tolls

new car warranties

Have three main conditions 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 but not surface rust. These warranties vary in time, mileage and parts they cover.

The Question

How much can you afford per month? Be sure to ask how many months.

money factor

Interest rate being paid on the capitalized cost.

Car sales techniques

Lowballing Highballing The question Unrealistic statements Hold the vehicle for a small deposit

Postpurchase activities

Maintenance and ownership costs.

Comparing used vehicles

New-car dealers Used-car dealers Individuals selling their own cars Auctions Used car superstores

New-car dealers

Offer late-model vehicles and may give you a warranty. Prices usually are higher than at other sources.

Selecting vehicle options

Optional equipment includes: 1) mechanical devices to improve performance such as power steering, power brakes and cruise control 2) convenience options including air conditioning, audio systems and power locks 3) aesthetic features such as metallic paint.

research based buying

Phase 1 - Pre-shopping activities Phase 2 - Evaluating alternatives Phase 3 - Selection and purchase Phase 4 - Postpurchase activities

Lowballing

Quoted a very low price that increases when add-on costs are included at the last moment.

suggestions pertaining to service contracts

Service contracts have many exclusions and can be deceiving. It is a wiser financial decision to put the money toward an emergency fund.

full warranty

States that a defective product can be fixed or replaced during a reasonable amount of time.