Personal Finance Chapter 6 - Consumer Purchasing Strategies and Wise Buying of Motor Vehicles
Impulse Buying
-Involves unplanned purchasing, which can result in financial problems
When Comparing Prices, Remember That:
-More store convenience (location, hours, sales staff) usually means higher prices -Ready-to-use products have higher prices -Large packages are usually the best buy; however, compare using unit pricing -"Sale" may not always mean saving money -The use of online sources and shopping apps can save time
Phase 3: Selection and Purchase
-Two vital factors in negotiation are: 1. Having all the necessary information about the product and 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
Practical Purchasing Strategies: Price Comparison
-Unit pricing uses a standard unit of measurement to compare the prices of packages of different sizes -To calculate the unit price, divide the price of the item by the number of units of measurement, such as ounces, pounds, gallons, etc
Resolving Consumer Complaints: Step 4 - Legal Action
-Consider bringing your case to small claims court -Determine if a class-action suit is appropriate -Seek assistance from a lawyer or legal aid organization
Implied Warranty
-Covers a product's intended use or other basic understandings that are nor in writing -Implied warranty of title - indicated that the seller has the right to sell the product -Implied warranty of merchantability - guarantees that the product is fit for the ordinary uses for which it is intended
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
Other Legal Alternatives
-A legal aid society is one of a network of publicly supported community law offices that provide legal assistance to people who cannot afford their own attorney. These community agencies provide this assistance at a minimal cost or without charge -Prepaid legal services provide unlimited or reduced-fee legal assistance for a set fee -Some programs provide basic services, such as telephone consultation and preparation of a simple will, for an annual fee -Prepaid legal programs are designed to prevent minor troubles from becoming complicated legal problems
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 -To effectively use small claims court, experts suggest that you: 1. Become familiar with court procedures and filing fees 2. Observe other cases to learn about the process 3. Present your case in a polite, calm, and concise manner 4. Submit evidence such as photographs, contracts, receipts, and other documents 5. Use witnesses who can testify on your behalf
Service Contracts
-An agreement between a business and a consumer to cover the repair costs of a product -Frequently called extended warranties, they are not warranties -For a fee, these agreements insure the buyer against losses due to the cost of certain repairs and losses -Beware of service contracts that offer coverage for 3 years but really only cover 2 since the item has a manufacturer's 1-year warranty -Because of costs and exclusions, service contracts may not be a wise financial decision -You can minimize your concern about expensive repairs by setting aside a fund of money to pay for them -Then, if you need repairs, the money to pay for them will be available
Phase 3: Selection and Purchase - Comparing Financial Alternatives
-Auto loans are available from banks, credit unions, consumer finance companies, and other financial institutions -Many lenders will preapprove you for a certain loan amount, which separates financing from negotiating the car price -Until the new-car price is set, you should not indicate that you intend to use the dealer's credit plan -The lowest interest rate or the lowest payment does not necessarily mean the best credit. Also consider the loan rate -Automobile manufacturers frequently present opportunities for low-interest financing. They may offer rebates at the same time, giving buyers a choice between a rebate and a low-interest loan
Phase 4: Postpurchase Activities - Automobile Servicing Sources
-Car dealers provide a service department with a wide range of car care services -Service stations can provide can provide convenience and reasonable prices for routine maintenance and repairs -Independent auto repair shops can service your vehicle at fairly competitive prices -Mass merchandise retailers, such as Sears and Walmart, may emphasize sales of tires and batteries as well as brakes, oil changes, and tune-ups -Specialty shops offer brakes, tires, automatic transmissions, and oil changes at a reasonable price with fast service
Practical Purchasing Strategies: Timing Purchases
-Certain items go on sale the same time each year -You can obtain bargains by buying winter clothing in mid- or late winter, or summer clothing in mid- or late summer -Many people save by buying holiday items and other products at reduced prices in late December or early January
Warranty
-A written guarantee from the manufacturer or distributor that specifies the conditions under which the product can be returned, replaced, or repaired
Used-Car Warranties
-FTC required "buyers' guide sticker" telling whether the vehicle comes with a warranty and, if so, what protection the dealer will provide -If no warranty is offered, the car is sold "as is" and the dealer assumes no responsibility for any repairs, regardless of any oral claims -FTC used-car regulations do not apply to vehicles purchased from private owners -Warranty of merchantability
Phase 4: Postpurchase Activities
-Maintenance and ownership costs are associated with most major purchases -Correct use can result in improved performance and fewer repairs -In the past, when major problems occurred with a new car and the warranty didn't solve the difficulty, many consumers lacked a course of action -US enacted lemon laws that require a refund for the vehicle after the owner has made repeated attempts to obtain servicing
New Car Warranties
-Provide buyers with an assurance of quality -These warranties vary in the time, mileage, and parts they cover -The main conditions of a new-car warranty are (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, not to surface rust -Other important conditions of a warranty are a statement regarding whether the warranty is transferable to other owners of the car and details about the charges, if any, that will be made for major repairs in the form of a deductible
Resolving Consumer Complaints: Step 1 - Initial Communication
-Return to place of purchase or contact online retailer -Provide a detailed explanation and the action you desire -Be pleasant yet persistent in your efforts to obtain a resolution
Phase 1: Preshopping Activities - Problem Identification
-A narrow view of the problem is a weakness in problem identification -Ex: You may think the problem is "I need to have a car" when the real problem is "I need transportation"
Class-Action Suits
-A legal action taken by a few individuals on behalf of all the people who have suffered the same alleged injustice -These people are represented by one or more lawyers -Once a situation qualifies as a class-action suit, all of the affected parties must be notified -A person may decide not to participate in the class-action suit and instead file an individual lawsuit -A recent class-action suit includes auto owners who were sold unneeded replacement parts for their vehicles
Research-Based Buying - Phase 4: Postpurchase Activities
-After making a purchase, several actions are encouraged: -Proper maintenance and operation -Identification and comparison of after-sale service alternatives -Resolution of any purchase concerns that may occur
Phase 1: Preshopping Activities - Information Gathering
-The better informed you are, the better buying decisions you will make -Too much information can create confusion and frustration 1. Personal contacts allow you to learn about product performance, brand quality, and prices from others 2. Business organizations offer advertising, product labels, and packaging that provide information about price, quality, and availability 3. Media information (TV, radio, etc.) can provide information about price, quality, and availability 4. Independent testing organizations, such as Consumers Union, provide information about the quality of products and services each month in Consumer Reports 5. Government agencies, local, state, and federal, provide publications, toll-free telephone numbers, websites, and community programs 6. Online reviews can provide buying guidance and shopping suggestions. However, be cautious since many are the result of fictitious online postings
Express Warranty
-Usually in written form -Is created by the seller or manufacturer and has two forms: the full warranty and the limited warranty
Research-Based Buying - Phase 3: Selection and Purchase
-When making your final choice, actions may include: -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
Phase 2: Evaluating Alternatives - Selecting Vehicle Options
-Optional equipment for cars may be viewed into 3 categories: 1. Mechanical devices to improve performance, such as power steering, power brakes, and cruise control 2. Convenience options, including power seats, air conditioning, audio systems, power locks, rear window defoggers, and tinted glass 3. Aesthetic features that add to the vehicle's visual appeal, such as metallic paint, special trim, and upholstery
Full Warranty
-States that a defective product can be fixed or replaced during a reasonable amount of time
Research-Based Buying - Phase 2: Evaluating Alternatives
-With every decision, consider various options: -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
Phase 4: Postpurchase Activities - Automobile Operation Costs
-Your driving costs vary based on the size of your automobile and the number of miles you drive -These costs involve: 1. Fixed ownership costs: depreciation, interest on auto loan, insurance, license, registration, taxes, and fees 2. Variable operating costs: gasoline and oil, tires, maintenance and repairs, parking and tolls -Largest fixed expense associated with a new automobile is depreciation, the loss in the vehicle's value due to tome and use
To Minimize Consumer Problems...
-Before making a purchase: 1. Obtain recommendations from friends, family members, and online reviews 2. Verify company affiliations, certifications, and licenses 3. Understand the sale terms, return policies, and warranty provisions
Practical Purchasing Strategies: Label Information
-Federal law requires that food labels contain certain information -Product labeling for appliances includes information about operating costs to assist you in selecting the most energy-efficient models -Open dating describes the freshness or shelf life of a perishable product -Most expiration dates relate to quality, not safety -Items used after the "sell by" date are likely to be safe for consumption
Phase 4: Postpurchase Activities - Motor Vehicle Maintenance
-Get regular oil changes -Check fluids -Inspect hoses and belts for wear -Get a tune-up every 12,000-15,000 miles -Check and clean battery cables and terminals -Check spark plug wires after 50,000 -Flush radiator and service transmission every 25,000 miles -Keep lights, turn signals, and horn in good working condition -Check muffler and exhaust pipes -Check tires for wear; rotate tires every 7,500 miles -Check condition of breaks
Resolving Consumer Complaints: Step 3 - Consumer Agency Assistance
-Seek guidance from a local, state, or federal consumer agency -Determine if any laws have been violated in the situation -Consider the use of mediation or arbitration
Phase 3: Selection and Purchase - Used-Car Price Negotiation
-Begin to determine a fair price by checking newspaper ads for the prices of comparable vehicles -Other sources of current used-car prices are Edmund's Used Car Prices and the Kelley Blue Book -Factors that influence the basic price of a used car include: the number of miles the car has been driven, along with features and options, affect price
Resolving Consumer Complaints: Step 2 - Communicate with the Company
-Send an e-mail with the details of the situation -Post your concerns on the company's online social media sites -Comment on a blog or a consumer's review website
Using a Lawyer
-Common sources of lawyers are referrals from friends, advertisements, and the local division of the American Bar Association -In general, straightforward legal situations such as appearing in small claims court, renting an apartment, or defending yourself on a minor traffic violation may not need legal counsel -More complicated matters such as writing a will, settling a real estate purchase, or suing for injury damages will likely require the services of an attorney -When selecting a lawyer, consider several questions: Is the lawyer experienced in your type of case? Will you be charged on a flat fee basis, at an hourly rate, or on a contingency basis? Is there a fee for the initial consultation? How and when will you be required to make payments for services?
Phase 2: Evaluating Alternatives - Comparing Used Vehicles
-Common sources of used cars include: 1. New-car dealers, which offer late-model vehicles and may give you a warranty. Prices usually are higher than at other sources 2. Used-car dealers, which usually have older vehicles. Warranties, if offered, will be limited. However, lower prices may be available 3. Individuals selling their own cars. This can be a bargain if the vehicle was well maintained, but few consumer protection regulations apply to private-party sales 4. Auctions and dealers that sell automobiles previously owned by businesses, auto rental companies, and government agencies 5. Used-car superstores, such as CarMax, which offer a large inventory of previously owned vehicles -Certified pre-owned vehicles are nearly new cars that come with the original manufacturer's guarantee of quality
Practical Purchasing Strategies: Purchase Location
-Competition and technology have changed retailing with superstores, specialty shops, and online buying -This expanded shopping environment provides consumers with greater choice, potentially lower prices, and the need to carefully consider buying alternatives
Personal Consumer Protection
-Consumer protection experts suggest you to prevent being taken by deceptive business practices, you should: 1. Do business only with reputable companies with a record of satisfying customers 2. Avoid signing contracts and other documents you do not understand 3. Be cautious about offerings that seem too good to be true - they usually 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
Phase 2: Evaluating Alternatives - Leasing a Motor Vehicle
-Leasing is a contractual agreement with monthly payments for the use of an automobile over a set time period, typically 3, 4, or 5 years -Leasing offers several advantages: 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 4. You are usually able to obtain a more expensive vehicle, more often -Leasing also has major drawbacks: 1. You have no ownership interest in the vehicle 2. You must meet requirements similar to qualifying for credit 3. Additional costs may be incurred for extra mileage, certain repairs, turning the car in early, or even a move to another state -Be sure you know the true cost, including: 1. The capitalized cost, which is the price of the vehicle 2. The money factor, which is the interest rate being paid on the capitalized cost 3. The payment schedule, which is the amount paid monthly and the number of payments 4. The residual value, or the expected value of the vehicle at the end of the lease
Practical Purchasing Strategies: Brand Comparison
-National-brand products are highly advertised items available in many stores -Store-brand and private-label products, sold by one chain of stores, are low-cost alternatives to famous-name products -Since store-brand products are frequently manufactured by the same companies that produce brand-name items, these lower-cost alternatives can result in extensive savings -The use of one or more of the many product comparison websites can assist you when comparing brands
Research-Based Buying - Phase 1: Preshopping Activities
-Start the buying process with actions that include: -Problem identification to set a goal and focus your purchasing activities -Information gathering to benefit from the buying experiences of others
Phase 3: Selection and Purchase - Price Bargaining for New Cars
-The sticker price label is printed on the vehicle with the suggested retail price. It 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 -Set-price dealers use no haggling car selling with the prices presented to be accepted or rejected as stated -Car-buying services (auto broker) are businesses that help buyers obtain a specific new car at a reasonable price -Sales techniques you should avoid: 1. Mentioning a trade-in vehicle 2. Lowballing, when quoted a very low price that increases when add-on costs are included at the last moment 3. Highballing, when offered a very high amount for a trade-in vehicle, with the extra amount made up by increasing the new-car price 4. The question "How much can you afford per month?" 5. Unrealistic statements 6. Sales agreements with preprinted amounts