FIN 221 Chapters 7-8

The average used car costs about ___ less than average new car

$10,000

Lemon laws apply when:

-after four attempts -made to get the same problem corrected or when the car has been out of service for more than 30 days within 12 months of purchase or the first 12,000 miles

Medium priced loans

-commercial banks, federal savings banks, credit unions

Collection Agencies can't:

-contact you before 8am or after 9pm -contact you at your place of employment -harass you or threaten harm -make false claims -say you will be arrested if you don't pay debts -state that they are taking legal action if they do not intend to do so

New-car warranties

-coverage of basic parts against defects -power train coverage for engine, transmission, and drive train -corrosion warranty, which applies to holes due to rust, not surface rust

Chapter 7 Bankruptcy: How does it work?

-debtor lists all assets and liabilities on a petition and submits petition to U.S. district court and pays a filing fee -Straight bankruptcy results in most and sometimes all debts forgiven

Chapter 13 bankruptcy: How does it work?

-debtor makes regular payments to Chapter 13 trustee -trustee distributes money to creditors -under certain circumstances, bankruptcy court may approve a plan to permit debtor to keep all property even though the debtor repays less than the full amount of debts

Expensive loans

-finance companies, retailers, and banks through credit cards

Special problems with automobile loans include:

-financial agreements permit credit to repossess car anytime you are in default on payments with no advance notice required -if your car is repossessed and sold, you still owe the difference between the selling price and unpaid debt plus any legal, towing, or storage charges

Full vs. limited warranty

-full: defective product can be fixed or replaced during a reasonable amount of time -limited: covers only certain aspects of the product or requires the buyer to incur part of the costs for shipping or repairs

Two important factors in successful negotiations are:

-having all necessary info about product adn buying situation -dealing with a person who has the authority to give you a lower price or additional features, such as owner or store manager

Questionable sales techniques include

-low/high balling -asking how much you will pay each month (don't know how many months) -saying a small deposit will hold car for you (do not need this) -hidden costs -sales agreements with preprinted amounts

Bankrupt Abuse Prevention and Consumer Protection Act of 2005

-made it more difficult for consumers to file a Chapter 7 bankruptcy and forces them into a Chapter 13 bankruptcy -too many people were abusing bankruptcy laws

Selecting vehicle options

-mechanical: improve performance, such as larger engine, transmission, power steering, power brakes, cruise control -convenience: power seats, air conditioning, stereo, power locks, defoggers -aesthetic: add to vehicle's visual appeal

Brand comparison: national vs. store brands

-national: highly advertised that are more expensive but offer consistency of quality -store brand: sold by one chain of stores; low cost alternatives

Main drawbacks of leasing a car

-no ownership interest on car -a need to meet requirements similar to qualifying for credit -possible additional costs incurred for extra mileage,certain repairs, turning car in early, or even moving to another state

Main advantages of leasing a car

-only small cash outflow may be required for security deposit -monthly lease payments are usually lower than monthly financial payments -lease agreement provides detailed records for business purposes -able to obtain more expensive car more often

Inexpensive loans

-parents/family members -money borrowed on financial assets held by a lending institution

Resolving Consumer Complaints: Step 4

-small claims court: settle minor disagreements; usually limit of $15,000-$30,000 -class-action suits: legal action taken by few people on behalf of all people who have suffered the same alleged justice -using a lawyer: more complication matters, such as writing a will, settling a real estate purchase, or suing for injury damages of product

Price comparison: rebate/unit pricing

-unit pricing: use of a standard unit of measurement to compare the prices of packages of different sizes -rebate: partial refund of the price of a product

Ways to lower interest rate

-variable interest rate: based on fluctuating rates in the banking system; this type of loan you share the interest rate risks with lender -secured loan: pledging property or other assets as collateral, receive a lower interest rate -up front cash: by making a large down payment, you forgo interest -shorter term borrowing

CCCS activities (two parts)

1. aiding families with serious debt problems by helping them manage money better and setting up budget and plan for spending 2. helping people prevent debt problems by teaching them how to create family budget plan, providing education, suggesting techniques for budgeting, and encouraging credit institutions to provide full info about costs and terms of credit

Avoid credit in 2 situations

1. do not need or really want a product that will require financing 2. when you can afford to pay with cash

Buying Motor Vehicles: Phase 2

Evaluating alternatives: comparison shopping can be beneficial when: -possible to delay the purchase or do without the item -pay with cash or buy with credit -what brands to consider -how do price, quality, and service compare to other stores -possibility of rent instead of buying

Upside-down/negative equity

after 2-3 years, the value of the car may be less than the amount you still owe

Discharge of debts in Chapter 7 does not affect:

alimony, child support, certain taxes,fines, education loan debts, or debts that you fail to properly disclose to bankruptcy court

Dealer's cost/invoice price

amount less than the sticker price

CCCS is supported by contributions from:

banks, consumer finance companies, credit unions, merchants

Used-car warranties

buyer's guide sticker states whether car comes with a warranty or not

Resolving Consumer Complaints: Step 2

communication with the company

Resolving Consumer Complaints: Step 3

consumer agency assistance -better business bureau: network of offices that resolve complaints with local merchants -mediation: attempt by impartial third party to resolve differences between two other parties through discussion -arbitration: settlement of a difference by a third party whose decision is legally binding

If you cannot make your payments,...

contact creditor at once and try to work out a modified payment plan with them

Leasing

contractual agreement with monthly payments for the use of an automobile over a set time period, usually 3-5 years

Costs of bankruptcy include:

court, attorneys' and trustees' costs and fees

Implied warranty

covers intended use or other basic understanding of the product not in writing

The Act does not apply to...

creditors that collect debt themselves

Fixed operational costs include:

depreciation, interest on auto loan, insurance, and license/registration/taxes/fees

The largest fixed expense associated with new car is:

depreciation: loss in the car's value due to time and use

Residual value

expected value of the vehicle at the end of the lease

Variable operational costs include

gas/oil, maintenance repairs, tires, and parking/tolls

Resolving Consumer Complaints: Step 1

initial communication -most consumer complaints are resolves at the original sales location

Money factor

interest rate being paid for the capitalized costs

Bankruptcy (defined)

legal process in which assets of a debtor are distributed among the creditors because the debtor is unable to pay his/her debts

Consumer Credit Counseling Services

local, nonprofit organization that provides debt counseling services

Lender risk vs interest rate

many people choose longer-term financing payments with a large final payment, but these requirements increase the cost of borrowing

Certified pre-owned cars

nearly new cars that come with the original manufacturer's guarantee of quality

Cooperative

nonprofit organization whose member-owners save money on certain products and services

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

Nation's number 1 financial problem

overdebtedness

Annual percentage rate

percentage cost of credit on a yearly basis; yields true rate of interest for comparison with other sources of credit

Buying Motor Vehicles: Phase 1

pre-shopping activites: define your needs/identify the problem -obtain relevant product information

Capitalized cost

price of the vehicle -average car buyer pays about 92% of the list price of car -average lessee pays about 96% of the list price

Fair Debt Collection Act

prohibits certain practices by agencies that collect debt for creditors

If residual value is greater than market value:

return the car

After the final car payments, you may choose to:

return, sell, or keep the car

Timing Purchases depends on:

sales, weather, economic conditions, and political difficulties

If the current market value > residual value:

sell the car for profit

Two factors of operation costs

size of the car and amount of miles you drive

Sticker price

suggested retail price printed on a label affixed to the car

Finance charge

total dollar amount paid to use credit -it includes interest costs, service charges, credit-related insurance premiums, and appraisal fees

To prevent confusion, do not mention ___ until the cost of the new car has been settled

trade-in vehicle

Demographics of bankruptcy filer

well educated, middle class baby boomers

CCCS services are usually free, however,...

when the CCCS administers a debt repayment plan, it sometimes charges a nominal fee to help defray administrative costs

Warranty (defined)

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