Chapter 8 - Consumer Purchasing Strategies and Legal Protection
Determining Purchase Price
2 Vital factors in negotiation are (1) having all necessary information about the product & buying situation & (2) dealing with a person who has the authority to give you a lower price or additional features, such as the owner or store manager.
Comparing Financing Alternatives
Auto loans are available from banks, credit unions, consumer finance companies, & other financial institutions. The annual percentage rate (APR) is the best indicator of the true cost of credit.
Personal Consumer Protection
Consumer protection experts suggest that to prevent being taken in by deceptive business practices, you should: 1. Do business only with reputable companies with a record of satisfying customers. 2. Avoid signing contracts & other documents you do not understand. 3. Be cautious about offerings that seem too good to be true - they probably are! 4. 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. 5. Avoid rushing to get a good deal; successful con artists depend on impulse buying.
Purchase cost
Purchase cost = Down payment + Loan payments + Opportunity cost - Estimated value at end of loan = $2,050 + ($720 × 48) + ($2,050 × 0.05 × 4) - $4,500 = $32,520
Arbitration
The settlement of a difference by a third party whose decision is legally binding.
Unit Pricing
The use of a standard unit of measurement to compare the prices of packages of different sizes.
Price Comparison
To calculate the unit price, divide the price by the number of units of measurement, such as ounces, pounds, gallons, or number of sheets (for items such as paper towels and facial tissues). Then, compare the unit prices for various sizes, brands & stores.
Buying VS Leasing An Automobile
To compare the costs of purchasing & leasing a vehicle, use the following framework: (Purchase) Down Payment + Monthly Loan Payment + Opportunity Cost of Down Payment - Estimated Value of Vehicle at end of Loan Term/Ownership Period (Leasing) Monthly Lease Payments + Opportunity Cost of Security Deposit + End-of-Lease Charges
What would be the net present value of a microwave oven that costs $189 and will save you $75 a year in time and food away from home? Assume an average return on your savings of 9 percent for five years. Use Exhibit 1-D. (Round time value factor to 3 decimal places, intermediate and final answers to 2 decimal places.)
$102.75 NPV = PV of cost savings - Initial cost = ($75 × 3.890) - $189 = $102.75
Gasoline cost
(Annual mileage / Miles per gallon) × Average gasoline price per gallon = (22,700 / 24) × $3.80 = $3,594
Operating cost per mile
(Total variable costs + Total fixed costs) / Annual mileage = ($3,818 + 4,559) / 22,700 = $0.369, or 36.9 cents per mile
Determining Purchase Price
- Comparing financing alternatives. - Negotiating the used-car price.
Preshopping Activities
- Considering information from independent testing organizations. - Identifying transportation needs.
Postpurchase Activities
- Lemon law provisions. - Computing operating costs.
Evaluating Alternatives
- Selecting vehicle options (mechanical devices, convenience options, and aesthetic features) - Considering certified, preowned vehicles.
Wise Online Buying Activities
1. Conduct Online Research 2. Compare Stores 3. Make Purchase 4. Plan For Future Purchases
Small Claims Court
A court that settles legal differences involving amounts below a set limit & employs a process in which the litigants usually do not use a lawyer.
Rebate
A partial refund of the price of a product.
Open Dating
Information about freshness or shelf life found on the package of a perishable product.
Impulse Buying
Unplanned buying.
Avoiding Lease Traps
When considering a lease agreement for a motor vehicle, beware of the following common pitfalls: - 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. Compare monthly payments & other terms among several leasing companies. People have been known to pay over $24,000 to lease a vehicle worth only $20,000 at the start of the lease agreement. Comparison of leasing terms is available at websites such as www.leasesource.com, www.leaseguide.com, & www.carinfo.com.
Class-Action Suit
A legal action taken by a few individuals on behalf of all the people who have suffered the same alleged injustice.
Cooperative
A nonprofit organization whose member-owners may save money on certain products or services.
Total fixed cost
Add All - Depreciation - Interest on Loan - Insurance - License/Registration
Buying Influences & Wise Spending Strategies
Economic Factors: Inflation, Interest, Rates, Tax Rates, Government Regulations & Product Safety Social Factors: Lifestyle, Interests, Hobbies, Peer Group, Culture, Advertising & Media Personal Factors: Gender, Age, Occupation, Income, Education, Marital Status & Family Size
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.
Postpurchase Activities
In the past, when major problems occurred with a new car & the warranty didn't solve the difficult, many consumers lacked a course of action. As a result, all 50 states & the District of Columbia enacted lemon laws that require a refund for the vehicle after the owner has made repeated attempts to obtain servicing. These laws apply when 4 attempts & made to get the same problem corrected or when the vehicle has been out of service for more than 30 days within 12 months of purchase or the first 12,000 miles. The terms of the state laws vary; for details go to www.lemonlawamerica.com
Leasing cost
Lease cost = Lease payments + Opportunity cost + End-of-lease charges = ( ($430 × 36) + ($1,430 × 0.05 × 3) + $1,380 = $17,074
Initial Communication
Most consumer complaints are resolved at the original sales location. Since most business firms are concerned about their reputations, they usually honor legitimate complaints.
Legal Aid Society
One of a network of publicly supported community law offices that provide legal assistance to consumers who cannot afford their own attorney.
Mediation
The attempt by an impartial third party to resolve a difference between 2 parties through discussion & negotiation.
Used-Car Price Negotiation
A number of factors influence the basic price of a used car, including the number of miles the car has been driven & the car's features & options. A low-mileage car will have a higher price than a comparable car with high mileage. The condition of the vehicle & the demand for the model also affect price.
Warranty
A written guarantee from the manufacturer or distributor of a product that specifies the conditions under which the product can be returned, replaced, or repaired.
Total variable cost
Add All - Gasoline - Oil/Repairs - Parking/Tolls
Service Contract
An agreement between a business & a consumer to cover the repair costs of a product.
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.
Leasing A Motor Vehicle
The main advantages of leasing include (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. Major 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. As a result, be sure you know the true cost, including 1. The capitalized cost, which is the price of the vehicle. The average car buyer pays about 92% of the list price for a vehicle; the average leasing arrangement has a capitalized cost of 96% of the list price. 2. The money factor, which is the interest rate being paid on the capitalized cost. 3. The monthly payment & number of payments. 4. The residual value, which is the expected value of the vehicle at the end of the lease. After the final payment, you may choose to return, keep, or sell the vehicle. If the current market value is greater than the residual value, you may be able to sell it for a profit. If the residual value is greater than the market value (which is the typical case), returning the vehicle to the leasing company is usually the best decision.