what is the average cost of a brand new car? $31,252
TRANSCRIPT
What is the average cost of a brand new car?
$31,252
Paying for a Vehicle
Unit 9
Pricing• Invoice price– How much it cost the dealership to buy the car from the
manufacturer (Ford)• MSRP (Manufacturer’s suggested retail price)– How much the manufacturer suggests the dealership
should try to sell the car for• Sticker price– How much the dealership tries to sell the car for with any
options added on• Book value– How much the car is really worth
• KBB.com
Negotiation Tips
• Dealerships need to make profits– Start your offers from the invoice price and work your
way up
• Don’t discuss your trade-in value until AFTER you have agreed on a price for the new/used car
• Don’t consider manufacturer rebates until AFTER you have agreed on a price for the new car– These come from the manufacturer, not the dealer;
they don’t hurt the dealership at all
Payment Options• Cash– Pay for the full cost of the car with the money you
have– Not usual, but a good option if you have enough cash
– Why?• No interest payments
• Loan (financing)– Pay monthly installments– Adds interest
• Leasing– Make monthly payments for a specified time period
(1 year)– Must give the car back at the end of the leasing
period
Buy or Lease?
Benefits of Leasing• Lease payments are
usually lower than loan payments– In the short-run only
• Receive a new car frequently
Benefits of Buying• Cheaper in the long-run– Once the car is paid, it’s
yours
Buy or Lease?
Drawbacks of Leasing• Mileage limits– If you go over them you
have to pay extra• Costly in the long run– You are always making
car payments
Drawbacks of Buying• Cars depreciate value
quickly– You may owe more than
what the cars worth
Buying with a loan (financing)• Shop around for the best interest rate– Dealers– Banks– Online credit businesses
• Down payment– Up front lump sum payment for the car– The bigger the down payment, the lower monthly
payments and interest you’ll have to pay
Interest Rates
• You MUST consider both the interest rate AND the loan period– Loan Period = How long you will be paying for the loan– Low interest rates may be costlier over a longer period
Ex. If you borrow $12,000 at a rate of…
For… You’ll pay back $12,000 PLUS
4% 36 months $754.36
4% 48 months $1,005.53
4% 60 months $1,259.88
5% 36 months $947.43
5% 48 months $1,264.88
5% 60 months $1,587.33
Low APR or Rebate?
• Dealers will typically offer you a choice of a rebate (cash back) or a low APR (interest) rate– Which one do you choose?
• Use an internet calculator (edumunds.com) to find out which is better
Quick Review1. When you decide to pay for a car in cash, how
much do you have to pay up front?
2. How are leasing and financing (loan) payment options similar?
3. What advantages does leasing have over buying?
4. Why should you make a large down payment?
5. In what situation would you want to pay a higher interest rate?
100%
You make monthly payments
Cheaper in the short run, newer cars more frequently
Less monthly payments, less interest costs
If it cost less with a shorter loan period