VROOOOOOM!!!
Car Basics
101
Name: __________________
Car Basics 101 /64
*Be sure to include all calculations!
Part 1: Costs associated with owning a vehicle
1) Look at websites of different car dealerships (Ford, GM, Honda, Toyota,
Hyundai, Chrysler, Lexus, Infinity, Acura, Saturn, Mazda, Buick, Pontiac,
BMW, etc). Choose a vehicle that you might like to own in the near future.
You should try to be realistic (don’t get carried away). It should be the
current model year of the car.
a) Make __________________________________________
b) Model _________________________________________
c) Options (that you would choose)
/3
1. _________________________________________
2. _________________________________________
3. _________________________________________
d) Car Total $ ______________
Get an Insurance Quote:
1) You may use the website http://www.kanetix.ca/
i. Enter Your Car Insurance
ii. Postal Code K1V 6J3
iii. Answer the following questions…
a) What is the cheapest policy - yearly amount? __________________
b) What is your deductible? What is a deductible? Review Coverage Details
/7 b) What happens to an insurance premium when a deductible is lowered?
c) List three major factors they consider when giving an insurance quote?
_____________ , ________________, ________________
d) Based on the factors that are considered, describe a scenario of someone
who might have a very high insurance quote.
Gasoline:
1a) Estimate the price of gas per litre today. Go to http://www.ottawagasprices.com
to get an idea.
c) Average tank size is 56.78 litres. How much would it cost to fill this tank,
based on today’s price?
d) Look up the fuel consumption for your car. It will be given as litres per
100km. There should be a value for city, and for highway driving.
/6
e) Choose a destination in Canada that you would like to drive to. Use
www.google.ca/maps to determine the distance in km to get there.
f) If the whole way was highway driving, how many litres of gas would you
need to get there?
g) How much would this cost, based on today’s price of gas?
Other Expenses:
1a) How often is it recommended to get an oil change (use the internet)?
b) Use the internet to look up the price for a basic oil change. Be sure to
include tax. You can choose any place that does them (Pennzoil, Oil
Changers, Canadian Tire, etc.)
c) If you drive an average of 10 000km per year, how much will you spend
on oil changes?
/6 2a) When do you need to purchase a license plate sticker? 1 year or 2 years
b) How much does it cost?
c) Where can you get it from?
d) How often do you have to get a drive clean emissions test and how much
does it cost?
Buying Versus Leasing a Car
There are big differences between buying and leasing. Typically, if you were to purchase
a new car, you would make a down payment and finance the remaining cost. At the end
of the term, the car would be yours. Leasing is essentially renting, with your payment
going towards the car's depreciation. If the lease includes a purchase option, you may
buy it at the end of a specific time period.
So which is better? That depends on your individual situation and needs. You will have
to decide for yourself by analyzing the advantages and disadvantages of each:
Leasing Advantages
There are short-term cost advantages to leasing. The monthly payments on a leased car
are usually far less than on a loane - even for a luxury model. The down payment
usually works out to be less than what you would pay for a bought car as well. Because
the typical lease is for three years, most repairs are covered by factory warranty. Sales
tax is cheaper too, as you only pay it on the financed portion.
An attractive feature of leasing is the ability to drive a new car every few years. You
never have to go through the hassle of selling it; you just turn it in at the end of the
term.
Leasing Disadvantages
While the payments are often reasonable, you never gain equity in the car. If you were
to buy it at the end of your contract, it would cost you a lot more than if you had just
bought it in the first place.
Leases are restrictive. If you exceed the yearly mileage limit you will be assessed an
extra charge. You must take good care of the car as well, as any nicks or dings will be
considered "wear and tear" and will cost you.
Comparing lease offers can be very confusing, making it hard to know if you got a good
deal. And you will find it difficult to get out of your lease early if you want to - a problem
if your driving needs or financial circumstances change.
Buying Advantages
When you buy a car, it's yours. You can customize it and drive it as hard and far as you
want, penalty-free. Rather than having infinite payments, buying means you will
eventually pay the car off. And if you want to sell it you can do so at any time, as you
are not locked into a contract.
Buying Disadvantages
Down payments on bought cars can be substantial. Monthly payments are usually higher
than a leased car, and once your warranty expires, you will be responsible for the
maintenance costs. When you want to sell it (or trade it in) you will have to go through
the hassle of doing so. And, as an investment, new cars depreciate rather than
appreciate.
Part 2: Buying Vs Leasing
Read “Buying Versus Leasing a Car”
1) State which option (buying or leasing) would be better in the following
scenarios, and why?
a) A 30 year old business man who drives around all day from client to
client.
b) A college student who doesn’t have much of a down payment, and a
very limited amount to spend per month.
/8 c) An auto mechanic, who enjoys doing all of his own repairs.
d) Newlyweds, who want a sports car for now, but are planning on starting
a family in a few years and will need a bigger car.
e) Jeremy wants to put in a huge new stereo system and change the paint
job.
2) Make a bill for the car you choose on page 1.
Base price: $ _______________
Cost of all options: $ ____________
/4
Other costs (freight, PDI) $1000.00 (estimate)
GST 6%: $___________
PST 8%: $ ___________
Total: $[_____________] [box 1]
Financing:
1) Suppose you have $5000 to use as a down payment on the car you are
financing. Subtract that from the price of your car. This is the amount you will
need to finance.
b) Assume your bank is giving you a rate of 2.3% compounded monthly, and
paid over a 5 year term. Use the TVM solver of the graphing calculator to
determine what your monthly payments will be. Enter these values:
N = 60
I% = 2.3
PV = the amount you are financing
PMT = 0.00 (this is what you are finding)
FV = 0.00
P/Y = 12
C/Y = 12
What will the monthly payments be?
/6
e) At the end of the 5 year term, how much will you have paid in total? (Don’t
forget to include the $5000 down payment.)
Total amount = Monthly payment x 60 + 5000
f) How much have you paid in interest?
Leasing:
1) Go to www.canadiandriver.com . From the menu at the left, choose
“calculators” and follow the steps to calculate how much a monthly
lease would be for the car you chose. Use a 5 year (60 month)
term, and a $5000 down payment. Interest rate 2.3%, security
deposit $0.00, capitalized cost of reduction (down payment) $5000.
/4 a) Your monthly lease payment is $_______________
b) How much have you paid after the 5 years. Don’t forget to add the
down payment again.
2) In your lease agreement you are allowed 25000 km per year for
free. After that you are charged $0.08 per km. After your 5 year
term, you drove a total of 140000 km. How much do you owe?
Part 3: New or Used Car
3) State whether it would be better to buy a new or used car, and why,
based on the following scenarios.
a) Sue lives in Ontario, but got a 1 year job contract in BC. She needs
a car there, but wants to sell it before she moves home again.
/8 b) Eric has his heart set on a certain high performance car. Only a
few hundred are made each year, and he is very particular about
which options he wants.
c) Jackie commutes about 100km each way to work, and is terrified
about her car breaking down.
d) The Reed family is interested in purchasing an extra vehicle for
doing errands.
4) Depreciation:
Depreciation is the major disadvantage to buying a new car. A car
depreciates in value the most during its first year. Here is a chart that
shows the typical depreciation rate of a car.
Time Depreciation (% of previous year’s value)
1st year 30%
2nd year 15%
3rd year 15%
4th year 10%
5th year 8%
Example: A Car that costs $25000 new is only worth $17500 after 1 year. 25000 (1 – 0.3)
To figure out the value after the 2nd year it would be 17500(1 – 0.15)
a) Use this chart to figure out how much your car [box 1] would be
worth after each of the first five years?
Time Depreciation Total (your car)
0 year -
1st year 30%
2nd year 15%
3rd year 15%
4th year 10%
5th year 8%
/12 b) Based on this information, when is the best time to purchase a
used car to get the best value? Why?
5) One of the major disadvantages to buying a used car, is you may
not know what you are getting. If you were going to buy a used car,
what are 5 important questions you might want to ask the previous
owner?