THE ABC’S OF VEHICLE FINANCING CURRICULUM
Getting Ready to Acquire
a Vehicle
Facilitators Guide
Module Objectives
Now that you have determined how much you can afford, it’s time to make a
decision on how you are going to pay for the vehicle you have selected. It is
important to remember that you have several options when it comes to paying for
your vehicle. Keep in mind at all times your spending plan and your future
financial goals when you decide on the type of vehicle and the monthly payment
that you will choose. Remind yourself that this is a long term commitment and
once is entered into cannot be reversed without major negative consequences to
your credit. After completing this module you will be able to:
Recognize the difference between buying a new or used vehicle
Recognize the differences of buying and leasing
Understand how to negotiate the price of a vehicle
Understand vehicle payment options
Recognize the types of insurance coverage
Select different payment options
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Recommended Time on Task by Subject
Subject Time on Task
Introduction and ice breaker 20 minutes
Selecting a new or used vehicle 20 minutes
Researching the vehicle you want 20 minutes
Buying or leasing 30 minutes
Leasing a vehicle 45 minutes
Buying a vehicle 45 minutes
Vehicle insurance 20 minutes
Optional after sales options 20 minutes
Section Review 20 minutes
Suggested lesson duration: 4 hours
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Module Table of Content
MODULE OBJECTIVES .................................................................................................... 1
RECOMMENDED TIME ON TASK BY SUBJECT ..................................................................... 2
INTRODUCTION ................................................................................................................ 5
KEY TERMS ...................................................................................................................... 7
SHOULD I GET A NEW OR USED VEHICLE? .............................................................. 10
RESEARCHING THE VEHICLE YOU WANT ................................................................. 12
VISITING THE DEALERSHIP.............................................................................................. 14
Deciding on Needs VS Wants .................................................................................. 15
BUYING OR LEASING .................................................................................................... 17
LEASING A VEHICLE ..................................................................................................... 22
WHAT TO CONSIDER WHEN COMPARING LEASE OFFERS? ................................................ 24
LEASING RIGHTS AND RESPONSIBILITIES ........................................................................ 24
Mileage ..................................................................................................................... 25
Wear and Tear/Maintenance.................................................................................... 25
Insuring a Leased Vehicle ........................................................................................ 25
Importance of GAP Insurance............................................................................... 25
End of the Lease ...................................................................................................... 26
Buying a Leased Vehicle .......................................................................................... 26
BUYING A VEHICLE ....................................................................................................... 28
FACTS AND TIPS ON VEHICLE FINANCING ......................................................................... 30
Completing an Application ....................................................................................... 30
FINANCE OPTIONS ......................................................................................................... 30
Direct Loan ............................................................................................................... 30
Dealer Financing ...................................................................................................... 31
Auto-financing ........................................................................................................ 31
Negotiating a vehicle price .................................................................................... 32
Negotiating a vehicle purchase ................................................................................ 32
Negotiation – before you visit the dealership ........................................................... 32
Negotiation – While at the Dealership ...................................................................... 33
Length of Financing Worksheet ............................................................................... 34
Lien on the Vehicle ................................................................................................... 35
Repossession and Your Credit ................................................................................ 35
Voluntary Repossession .......................................................................................... 36
VEHICLE INSURANCE ................................................................................................... 37
BUYING INSURANCE ....................................................................................................... 41
FACTORS IN SETTING RATES .......................................................................................... 41
GAP PROTECTION .......................................................................................................... 42
Disability Insurance .................................................................................................. 42
OPTIONAL AFTER SALE PRODUCTS ......................................................................... 43
VEHICLE OPTIONS AND THEIR IMPACT ON YOUR PAYMENT ............................................... 44
SERVICE CONTRACT ...................................................................................................... 45
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Questions to Ask Before You Purchase a Service Contract.................................... 46
SELF-TEST: ARE YOU READY TO BUY A VEHICLE? ................................................ 47
SECTION REVIEW .......................................................................................................... 48
ADDITIONAL LEARNING RESOURCES ....................................................................... 50
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Introduction
About this manual
This manual contains the same information provided to your
workshop participants in their instructional manual. For each
section we provide specific suggestions and resources selected to
help you deliver the classroom instruction. These include teaching
tips, questions to generate classroom discussion, and a module
PowerPoint presentation. In addition every section or subject has
additional reference materials which provide supplementary online
instructional materials and resources. These were resources were
selected to provide the facilitator with more information about the
subject or materials being taught that can be used to enhance the
delivery of instruction.
Before the workshop session:
Before conducting the workshop, take time to familiarize yourself with the
participant manual, exercises, additional learning resources, teaching tips
and questions to generate discussion and PowerPoint presentation.
For classroom use it is highly recommended to secure a flip chart, color
markers, projector, and laptop. Familiarize with setting up the equipment
and with its operation.
At the workshop:
Welcome the participants Ask participants to introduce themselves, and
share what their expectations are for this program, and what they hope to
get out of the seminar. Write these down on a flip chart as they share.
(This activity will help participants get to know each other and feel more
comfortable and give you an idea of what they are expecting from the
session.)
Review the objectives of the session and the agenda. If applicable, hand
out materials to participants. Using the module PowerPoint presentation
review the module objectives:
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Use this time to listen as well as to manage expectations as to what will
be accomplished during the lesson. Let participants know that their
specific personal situations may not be able to be addressed directly in
the lesson but that the information should be valuable to them.
Make sure to schedule breaks after 1.5 hours of instruction.
Encourage participants to ask questions; try to create an interactive-
participatory learning environment. If you do not have the answer to a
question, be honest and say: ―I don’t know the answer but I will research
it for you”. Bring the answer next day and explain where and how you
found the answer.
Do not ask personal questions to participants which could potentially
disclose personal or confidential financial information. Always use
hypothetical scenarios.
Always use a flip chart to write down key concepts, at the end of the day
review the key learning concepts.
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Key Terms
Acquisition Fee: Charge included in most lease transactions to cover
administrative costs. It may also be called an
administrative fee or assignment fee.
Amount Financed Is the dollar amount of the credit that is provided to you
APR: Annual Percentage Rate, the rate expressed in percentage
terms of interest on a loan charges each year.
Agreed upon value of the vehicle: In leasing is similar to the agreed upon sales price
of the vehicle in financing.
Base Price: Is the cost of the vehicle without options; includes standard
equipment and factory warranty.
Collateral: Securities or other property pledged by a borrower to secure
repayment of a loan.
Credit Insurance: Is an optional insurance that pays the scheduled unpaid
balance if you die or scheduled monthly payments if you
become disabled
Dealer Charges: Amounts charged for features sold separately by auto
dealers, such as rust proofing, undercoating or services
offered in extended warranty plans.
Dealer Sticker Price: Is the MSRP plus the suggested retail price of dealer-
installed options
Depreciation: Amount by which a vehicle is expected to decrease in
value over a specific period of time.
Down Payment: Initial payment put against the total cost of the vehicle,
usually expressed in a percentage, the larger the payment,
the lower the remaining amount of the vehicle you will
need to finance.
Extended Service Contract:: Is an optional protection on specified mechanical and
electrical components of the vehicle, available for purchase
to supplement the warranty coverage
Finance Charge: The total dollar amount you pay to use credit, calculated by
compounding interest based on your APR.
Fixed Rate Financing: Means that the finance rate remains the same over the life
of the contract
Gap Protection: Insurance that covers the difference between the total
amount you owe on a vehicle and the insurance value of
the vehicle should the vehicle be stolen or declared a total
loss after an accident.
Gross capitalized cost: Is the agreed upon value of the vehicle and any items you
pay over the lease term (for example, an acquisition fee).
Guaranteed Auto Protection (GAP): Is optional protection that pays the difference
between the amount you owe on your vehicle and the
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
amount you receive from your insurance company if the
vehicle is stolen or destroyed before you have satisfied
your credit obligation.
Incentives: Amounts rebated or credited, or special programs offered
to encourage the lease or purchase of certain vehicles.
Invoice Price: Is the manufacturer’s initial charge to the dealer.
Leasing: An agreement between the owner of the property and the
user for the use of a leased vehicle subject to stated terms
and conditions for a certain length of time and for an
agreed upon payment.
Lender: Bank, credit union or other financing sources that lends
money directly to you for a vehicle or other purchase.
Lessee: The person who leases a vehicle, apartment, house, etc.
Lessor: Owner and title holder of the vehicle, offers to lease or
arranges for the lease of the vehicle.
Lien: A legal claim on ownership of the vehicle stemming from a
debt.
Manufacturer’s Suggested Retail Price (MSRP): Shows the base price, the
manufacturer’s installed options with the manufacturer’s
suggested retail price, transportation charge, and the fuel
economy (mileage).
Monthly lease payments: Are usually lower than monthly finance payments when
comparing leasing and financing for the same term
because you are paying for the vehicle’s depreciation
during the lease term, plus rent charges (like interest),
taxes and fees. These are simply the amount you will pay
every month to use the vehicle.
Monthly Payment Amount Is the dollar amount due each month to repay the credit
agreement
Negative Equity: The difference between what you owe on a vehicle you are
trading in and the amount offered by the seller of a new
vehicle, if that amount is less than you owe.
Option Package: Options available in a vehicle which are offered as a
―package‖ or group.
Rebate: A deduction taken from a set payment or charge. As a
rebate is given after payment of the full amount has been
made, it differs from a discount which is deducted in
advance of the payment.
Registration and License Fees: Amount paid to cover the costs or vehicle registration
and license fees.
Rent charge: Similar to the interest of finance charge on a loan or
installment sales contract.
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Residual value: End-of-term value of the vehicle established at the
beginning of the lease and used in calculating your base
monthly payment.
Term: Length of the lease agreement or finance contract in
months.
Total of payments: Is the total amount due over the term of the lease.
Up-front costs: May include the first month’s payment and/or refundable
security deposit. Generally you will be required to pay a
security deposit and your first payment at the time you sign
your lease agreement.
Vehicle Identification Number (VIN): Usually a seventeen (17) character alpha-
numeric identifier. It is a unique number to each vehicle.
The VIN# is usually located on the driver's side of the
dashboard or inside the driver's side door.
Variable Rate Financing: Means that the finance rate varies and the amount you
must pay changes over the life of the contract.
Warranty: A guarantee from the dealer or manufacturer that an auto
will perform as expected or specified. Warranties usually
cover specific mechanical problems for a specific number
of miles or amount of time.
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Should I get a new or used vehicle?
(Suggested Time on Task 20 min.)
Subject Teaching Tips
Discus the pros and cons of acquiring a new or used vehicle;
Talk to your students about lifestyle choices that might influence their
need for a new or used vehicle;
Make reference to the family monthly budget to determine the loan
or repayment or leasing payment;
Ask students to search on the local dealers add information about
new and use vehicle cost, features, etc.
Questions to generate discussion
Based on your monthly budget, how much do have available for
acquiring and maintaining a vehicle?
Do you have any other financial plans or needs which might affect
your repayment capability?
Does your lifestyle or work require a new or used vehicle?
PowerPoint Slides Thumbnails Slide Notes
Follow the questions
presented on the slide bullets
and promote discussion.
Ask students to bring
information about new and
used vehicle in your
community, discuss the pros
and cons of used and new
vehicles based on the
information provided on the
adds.
Reference Materials
http://www.vehiclefax.com provides information on vehicles based on
their VIN;
The allure of a new vehicle can be powerful, but three times as many used
vehicles are sold each year in this country than new vehicles. Your budget and
mindset -- some people just can't stand the idea of "buying someone else's
trouble'' -- may determine which is right for you. If you're on the fence, here's a
breakdown of benefits and drawbacks.
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
New-vehicle benefits and drawbacks
Benefits Drawbacks
• It comes with a comprehensive • It will cost significantly more than a
manufacturer's warranty of at least three-year-old used vehicle.
three years or 36,000 miles that will • Comprehensive and theft insurance
cover almost any eventuality. Some costs could be significantly higher
go to 10 years or 100,000 miles. than buying used, although insurers
• It will likely have the latest safety, offer discounts for newer safety
comfort and convenience features features.
available. • It will lose 25 to 40 percent of its
• There are no surprises. You are the value the moment you buy it, likely
first owner and there are no doubts locking you in to long-term ownership.
about previous mechanical problems
or accidents.
Used-vehicle benefits and drawbacks
Benefits Drawbacks
• Are significantly cheaper to buy than • Questionable maintenance and repair
a new one. history.
• Comprehensive and theft insurance • No comprehensive new-vehicle
costs are likely to be less. warranty, though used-vehicle
• The rate of depreciation over time will warranties often are available at extra
be less than the first two years of cost.
ownership of a new vehicle. • Higher maintenance costs as the
• A buyer may be able to step up to a miles on the vehicle climb toward
luxury model for the same price as a 100,000 miles.
new, plain-Jane sedan or SUV. • Not as many safety and convenience
features as newer vehicles.
If you decide to buy a used vehicle it is highly advisable to research the vehicle history.
Was the vehicle totaled and rebuilt? Flood damage? Odometer fraud? With the Vehicle
Identification Number (VIN) visit CarFax at http://www.carax.com/
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Researching the Vehicle You Want
(Suggested Time on Task 20 min.)
Subject Teaching Tips
The decision about what vehicle participants will drive is influenced by
economical, functional and emotion al factors. This section will help
your students rationalize the process.
Emphasize on the importance of becoming an educated consumer by
researching for information regarding vehicle features, consumer
ratings, prices, etc.
Review the section on credit rating. Students should review their
credit rating, this will help them to know where they stand regarding
obtaining a competitive interest rate when financing a vehicle.
Ask participants If they plan to give their current vehicle as trade-in
determine the vehicle value based on the Blue Book value and how
much do you owe.
Emphasize on defining their vehicle needs based among many other
factors on lifestyle choices.
Questions to generate discussion
How much do you drive?
Do you always want to be upgrading to a newer model vehicle?
Or do you want to buy and keep the vehicle of your dreams?
Have you researched the options you want or need on your vehicle?
PowerPoint Slides Thumbnails Slide Notes
Follow the questions
presented on the slide
bullets and promote
discussion.
Emphasize that they need to
become an educated
consumer, before visiting the
dealerships they need to
research vehicle features,
prices, safety and users
ratings among many other
aspects.
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Discuss the slide questions.
Recommend your students
to have the answers to the
questions presented on the
slide prior to their visit to the
dealership.
Related to trade in
recommend your students to
know how much they owe
and how much the value of
their vehicle
Ask students to make a list of
the options they need ad
want on their vehicles;
Research using adds and
vehicle literature the cost of
the options they have listed;
Ask students to classify each
of the options as needs or
wants;
Based on the literature and
on their financial capability
participants should make an
inform decision on what they
need vs. what they can
afford.
Reference Materials
Edmunds Web site: www.edmunds.com
National Automobile Dealers Association Web site: www.nada.org
Kelley Blue Book Web site: www.kbb.com
As important as reviewing your finances
is researching the type of vehicle that you
are interested in.
Consult vehicle or truck buying guides, the Internet and other sources to
learn about pricing and features for the vehicle you want.
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Always read the fine print, so you are clear about what is being
advertised, the interest, down payment, finance and lease terms and any
additional charges.
Make every effort to become an informed consumer before you make a
major purchase like a vehicle or a home.
Shop around, ask about incentives and programs for first time vehicle
buyers, interest reduction plans and compare payments when offered a 0
down payment deal.
Dealer incentives (amounts rebated or credited, or special programs offered by
the dealer to encourage the lease or purchase of certain vehicles) and other
special offers might impact the amount of your monthly vehicle payment. Be
prepared to avoid serious credit problems that can occur if you overspend. Keep
in mind that being informed will not only protect your finances, but will help you
have a positive vehicle buying experience.
Visiting the Dealership
When you visit a vehicle dealership, you should already have an idea of the type
of vehicle that you want to buy. You have seen ads on T.V., the Internet, vehicle
magazines and have seen your dream vehicle passing you by. At the dealership
a vehicle sales representative will greet you and help you find the kind of vehicle
you are looking for. He or she might ask you questions regarding how much you
drive, whether you are looking for a new or used vehicle and if the vehicle is for
work or pleasure. Depending on your answers, the sales person will recommend
some specific models from the many that they might have in the vehicle lot.
At this point, you probably have many questions and as many decisions to be
made. Take your time. If you are unsure of purchasing a vehicle on the first visit
to the dealership, let the sales person know and return to the dealership another
time. No purchase should be made under pressure.
The following questions might help you in your decision making:
Should I buy a new or used vehicle?
Depends on what you want and how you plan to use the vehicle.
Should I lease or buy a vehicle?
Dependent on your lifestyle choices for use of the vehicle and
amount of time you want to have the vehicle. Are you buying the
vehicle of your dreams or do you dream of having a new vehicle
every three or four years?
How much do I want to spend?
For most people, buying a vehicle is an emotional purchase. You
should consider your experience in general, what you can afford
and how much are you willing to spend.
Should I trade in my vehicle?
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
And if I do, how do I know how much is the value?
Generally speaking, sales people will offer you 40% of the market
fair value for a vehicle to facilitate the transaction. NOTE: This is
not always the case – the value offered depends on the age,
condition and mileage of your present vehicle.
Do I have negative equity in my old vehicle?
Negative equity means you owe more on your present vehicle
loan than
the actual
market
value of
the
vehicle.
Most dealerships have a
Finance and Insurance (F &
& I) Department that
provides one-stop
shopping for financing and leasing. At the F & I Department:
The F & I Department manager will ask you to complete a credit
application.
A copy of your credit report will be obtained
NOTE: Dealers will be able to offer you a number of financing solutions
from different lenders – it is important to review all of the options of the
various companies before making a decision to accept a particular offer
or work with a specific company for your financing. You may also be able
to secure financing in advance of going to the dealership using a loan
broker available through online banks and other lenders.
If you are approved, you will sign a contract with the dealership to pay for
the vehicle over time.
Most vehicle manufacturers have their own finance companies that can
provide dealerships with financing.
Deciding on Needs VS Wants
By this time the list of decision-questions should have helped you weigh your
needs VS. wants. However, having so many options before your eyes may
impair your ability to choose what you really need. Keeping in mind your budget
and the amount of money you want for your new vehicle payment monthly will
ease your decision.
At the dealership, you will encounter several add-on options that will raise the
price of your vehicle. For example, do you want a sunroof? Then, you should
ask yourself, do I really need a sunroof if that adds an additional $400-$1600 to
the price of the vehicle? Shop around prior to the day that you sign the contract
to buy your vehicle. Be informed about other dealer incentives so you can
negotiate. The sales representative might honor another dealer’s incentive to
help you with the purchase of your vehicle. You might be able to get a free
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
option such as an air conditioner or an alarm system when you negotiate with the
manager at the dealership. Remember, at the dealership prior to signing your
contract, there is ample room to negotiate.
Vehicle Buying
Needs vs. Wants
Classify the following options as needs or wants by placing an X on the correct column:
OPTIONS ESTIMATED NEED WANT
PRICE
Automatic transmission $500-$3,000
Heated seats $200-$500
Air conditioning $200-$1,500
Premium sound system $250-$2,500
Antilock brake system $500-$1,000
Power door locks $50-$200
Theft-deterrent system $100-$700
Air bags for passenger side $400
Integrated child seat $100-$200
Sunroof/moonroof $400-$1,600
Trip computer $200-$450
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Buying or Leasing
(Suggested Time on Task 30 min.)
Subject Teaching Tips
Discuss what are lifestyle choices;
Make reference to the need of having an individual or family budget
to determine how much can be assigned for vehicle total cost
ownership.
Questions to generate discussion
How many miles do you drive monthly or annually?
What has been your experience with buying or leasing vehicles?
What is the difference between leasing and purchasing a vehicle?
What are some advantages to leasing?
What are some advantages to buying?
PowerPoint Slides Thumbnails Slide Notes
Follow the questions
presented on the slide bullets
and promote discussion.
Emphasize on asking how
many miles participants drive
annually;
Discuss the impact of mileage
on lease payment.
Ask students if vehicle
ownership is an important
issue.
Reference Materials
The Guide to Leasing
New vehicle Buying Basics
Used Vehicle Buying Basics
Differences Between Buying & Leasing
Before you get your next vehicle, it is important to evaluate the costs and benefits
of leasing versus buying a vehicle. Here are some of the major differences
between leasing and buying.
When you buy, you pay for the entire cost of a vehicle; regardless of how many
miles you drive it. You typically make a down payment, pay sales taxes in cash or
roll them into your loan, and pay an interest rate determined by your loan
company, based on your credit history. You make your first payment a month after
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
you sign your contract. Later, you may decide to sell or trade the vehicle for its
depreciated resale value.
When you lease, you pay for only a portion of a vehicle's cost, which is the part
that you "use up" during the time you're driving it. You have the option of not
making a down payment, you pay sales tax only on your monthly payments (in
most states), and you pay a financial rate, called money factor, that is similar to
the interest on a loan. You may also be required to pay fees and possibly a
security deposit that you don't pay when you buy. You make your first payment at
the time you sign your contract — for the month ahead. At lease-end, you may
either return the vehicle, or purchase it for its depreciated resale value.
Ownership: With a lease you do not own the vehicle. Leases are basically long-
term rental agreements. You make monthly payments to the dealership. These
agreements might last from 2 – 5 years. If you obtained a vehicle purchase loan,
you would own the vehicle at the end of the loan.
Lifestyle Choices
When making a decision regarding leasing or buying you must take into
consideration your lifestyle, among them the following:
How much do you drive?
Do you always want to be upgrading to a newer model vehicle?
How much do you want to buy and keep the vehicle of your
dreams?
Mileage limitations: Leases usually restrict the number of miles
you drive each year. You must pay the dealer for each additional
mile driven as stated in your lease contract. For example, a two-
year lease might have a 24,000-mile restriction, and cost you
$0.15 for each mile driven over 24,000. This can add up if you
drive a lot. Driving 2,000 miles over the limit would cost you $300
(2,000 x $0.15 = $300). If you buy a vehicle, there are no mileage
restrictions.
Wear and Tear: Most
leases charge for
exceeding ―normal‖
wear and tear. You
must maintain the
vehicle while you
lease it. If you buy,
you would not have
any additional costs
for wear and tear in your purchase agreement – but you still incur
costs for maintenance and upkeep.
Down Payments and Monthly Payments
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
When you buy there are a wide range of financing options,
depending upon how much you negotiate on the price of the
vehicle, how much money, and the type of loan you have. You
can pay more each month and pay off the loan early.
When you lease a certain down payment amount is required.
Monthly payments are predetermined; there is a set minimum.
You could conceivably pay more each month, but you would only
be covering future lease payments. There can be balloon
payments at the end of the lease if you choose to purchase the
vehicle.
Buying vs. Leasing Worksheet
Buying/Financing Leasing
Monthly Payments Higher (compared to Lower (compared to
leasing for the same financing for the same
number of months) number of months)
because you are paying because you are not
for the entire vehicle paying for the entire
over the term of your vehicle over the term
contract. of your contract.
State & County Sales Tax Paid on the entire price Generally paid on the
of the vehicle. In some payment you make on
states you can deduct the the lease. In some
net value of your trade-in. states you pay on the
entire sales price.
Vehicle Warranty May expire before Often remains in force
most people pay off their for most or all of the
finance contract. typical shorter term
leases.
Deposits and Fees A security deposit is not Lease may require a
required. security deposit,
acquisition and
termination fees, and
other similar charges.
Repairs & Maintenance Owner chooses what and Lease agreement may
when to make repairs or require lessees to
service. make repairs and
regularly service the
vehicle.
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Exercise
Place a check by the three features listed below that appeal the most to you and fit your
vehicle needs.
Buying/Financing Leasing
□ Satisfaction of owning your own vehicle □ A chance to drive a new vehicle more
often because lease terms are often
shorter than finance terms
□ Plan on keeping your vehicle for a long □ No resale or trade-in hassles
time
□ Use of vehicle may result in excess □ Potential lower monthly payment or
wear and tear ability to afford a more expensive vehicle
than if you finance for the same term
□ No restraints on mileage if you drive
excess miles
□ The vehicle is yours to sell or trade in at
any time for another vehicle
You may want to consider your answers when the time comes to buy or lease a vehicle.
Comparison of a finance payment and lease payment on the same vehicle
Finance Payment Lease Payment
A. Agreed Upon Selling Price/
Value of the Vehicle $21,000 $21,000
B. Plus Acquisition Fee N/A $595
C. Gross Capitalized Cost N/A $21,595
D. Down Payment $2,000 0
E. Amount Financed $19,000 N/A
F. Residual Value N/A $10,000
G. Depreciation N/A $11,595
H. Term in Months 48 48
I. APR 10% N/A
J. Finance Charge/Rent Charge $4,130 6,438
K. Total of Payments $23,130 $18,048
L. Monthly Payment $482 $376
M. End of Finance Contract/ You own You return
Lease Agreement the vehicle the vehicle
For purposes of this example, no taxes, title or registration fees have been included.
Those amounts will be extra.
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Exercise
Using the letters in the left column of the chart on the previous page answer the
following questions by selecting the best answer.
1. In financing a vehicle, what is the figure you get when you take the Agreed
Upon Selling Price less the Down Payment? ___________
2. Which of the following items is unique to leasing? Circle the correct answer.
A H L
3. Which of the following items is unique to financing? Circle the correct answer.
A H I K
4. In leasing, this figure is the Agreed Upon Value of the Vehicle plus the
Acquisition Fee. __________
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Leasing a Vehicle
(Suggested Time on Task 45 min.)
Subject Teaching Tips
Review the differences between buying and leasing.
Discuss the advantages of leasing for those that leasing makes sense.
Emphasize that the major difference between buying and leasing is
the ownership of the vehicle.
Questions to generate discussion
Do you know somebody that has lease a vehicle?
What has been their experience?
Would you consider leasing a vehicle?
Do you know the advantages and disadvantages of leasing?
Use the slide bullets to lead
classroom discussion.
Discuss what GAP insurance is:
In the event of total loss of the
vehicle, the insurance
coverage pays only the fair
market value of the car minus
the deductible. Such coverage
is normally not sufficient to
cover the financial obligation
of the lessee. GAP covers this
difference between the
financial obligation and the
insurance settlement.
Participants need to
understand their rights and
responsibilities when engage
in a lease agreement.
Emphasize on the importance
of defining how many miles
you drive per month and its
implications regarding the
total cost of leasing.
Insurance of a lease vehicle
might be higher than a finance
vehicle.
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Make sure that participants
understand that there is no
ownership of the lease vehicle
at the end of the lease
contract;
Discuss the end of lease
options;
If they opt for purchasing the
leased vehicle they will need
to understand how to finance
the vehicle.
Recommend participants to
research the vehicle cost on
Kelly’s Blue Book before
negotiating the sale price.
Reference Materials
Kelly’s Blue Book
A Consumer's Guide to Smart Car Leasing
Leasing a vehicle involves many of the steps and requires the same insurance
and payment responsibilities as financing a vehicle. A major difference on the
transaction is the ownership of the vehicle. When you purchase a vehicle, you
become the owner at the end of your loan. With a lease agreement, you are not
the owner, but you are still responsible for upkeep and maintenance, insurance
and lease payments.
Below are some of the payments that you are responsible for when you lease a
vehicle:
Monthly Lease Payment
Sales, use and property taxes
Insurance Policy Payments
Maintenance Costs
Fees for Late Payments
Safety and Emissions Inspections
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Fees for Early Contract Termination
Charges for Excess Mileage
Excessive Wear and Tear Charges
Any traffic tickets
What to consider when comparing lease offers?
The agreed-upon value of the vehicle — a lower value can reduce
your monthly payment;
Up-front payments, including the capitalized cost reduction
(depreciation of the vehicle);
The length of the lease, and the monthly payment;
Loyalty programs and finance company incentives;
End-of-lease fees and charges;
Consider mileage allowed and per-mile charges for excess miles;
Understand the option to purchase either at lease-end or earlier;
Consider whether your lease includes GAP coverage, which
protects you if the vehicle is stolen or totaled in an accident;
Ask for alternatives to advertised specials and other lease
offerings.
Leasing Rights and Responsibilities
You Have the Right to
Use the vehicle for an agreed upon number of months and miles
Turn it in at lease-end, pay any end-of-lease fees and walk away
Buy the vehicle, if you have a purchase option either during your
lease or at the end of its term
Take advantage of any warranties, recalls or other services that
apply to the vehicle
You May Be Responsible for
Vehicle insurance
Excess mileage charges when you return the vehicle
Excessive wear charges when you return the vehicle
Substantial payments if you end the lease early
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Mileage
Most standard leases are based on a specified number of miles you can drive,
typically 15,000 of fewer per
year. Be vehicleeful to
always consider mileage
stipulations when shopping
for a lease. Select the
amount of miles that
matches your driving habits.
Keep in mind that when you
lease a vehicle, you are
actually paying for the use of
it. If you use it a little, you
will pay less, if you use it a
lot, you will pay more.
Wear and Tear/Maintenance
Leasing contracts generally specify that at the end of the lease, you must return
the vehicle with no more than ―normal‖ wear and tear. Most new contracts spell
out wear and tear as taking reasonably good care of the vehicle and keeping it
maintained. If your vehicle has significant damage, you should get it repaired
before you return it or you may have to pay for it after you return the vehicle.
Insuring a Leased Vehicle
Most leases require you to purchase more auto insurance than your state's
minimum liability coverage. For example, you'll likely have to purchase liability
coverage of $100,000 per person and $300,000 per accident for bodily injuries,
and $50,000 worth of liability insurance for property damages (also known as
100/300/50). Most states' minimum requirements are about one-quarter of that.
In addition, you'll probably be required by the lease to buy collision and
comprehensive insurance. These coverages pay for losses due to fire, theft,
vandalism, civil riot and collisions with animals. Both coverages require a
deductible, and depending on your lease contract, those deductibles are subject
to a cap.
Importance of GAP Insurance
Many lease contracts include gap insurance -- coverage that will pay the
difference between what you owe on your car lease and what the insurer pays in
case your car is "totaled." Your insurer has the option of either "totaling" your
vehicle -- paying you or the lienholder the actual cash value of the car -- or
repairing the vehicle after a bad accident. (Insurers generally will total the car
after damages surpass 70% of the vehicle's worth.) If your insurance company
totals your leased car, whether or not you receive the insurance proceeds
directly is of little consequence. Chances are good that you'll have to turn all of
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
that money over to the lienholder, but that's no guarantee you've satisfied your
lease contract.
It's not uncommon to still owe money to your lienholder after turning over the
"total" insurance proceeds. That's where gap insurance comes in to play. It will
pay the remaining lease bill so you can start fresh with a new lease or a new
financing deal. If your lease contract does not include gap insurance, it's a good
idea to shop around for the best price. Gap insurance premiums run the gamut,
but without it, you could be stuck with hefty payments on a car you no longer
drive, plus the payments for your replacement car.
End of the Lease
At the end of the lease, you do not owe your vehicle. Provisions on your lease
agreement govern your options. These may include:
Returning the vehicle and pay any amounts owed
Arranging for the repair of any damage and returning the vehicle
Extending the lease
Leasing the vehicle for a new term or releasing
Purchasing the vehicle
At the scheduled lease termination date, if you return the vehicle, the lessor will
arrange an inspection of the vehicle. After the inspection, you should carefully
review the vehicle condition report and discuss any questions with the person
conducting the inspection. You should note any questions or concerns on the
report before signing. Under state law or under your lease agreement, you may
have the right to dispute the condition report.
End-of-term charges might include:
Disposition fee
Excess mileage charges
Excessive wear and tear charges
Buying a Leased Vehicle
At the end of the lease, you may renew it, return the vehicle and walk away or
buy the vehicle by paying cash or financing it.
If you decide to buy the vehicle at the end of the lease, there are some important
things to consider:
How much has the vehicle value in the market appreciated or
depreciated?
Do you want a brand new vehicle every three of four years?
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Will you have to change vehicles on short notice?
Leasing generally makes better vehicles available for a lower price. But this is
not a 100% rule of thumb. As long as you have done your research, and turn in
a clean, well-maintained vehicle, you’ll see the benefits much more clearly.
In summary, the major difference between buying and leasing is the ownership of
the vehicle. When buying, you are the owner and your name is listed on the title
along with your finance company or bank if you choose to finance the vehicle.
When you lease, the leasing company is the vehicle owner, you are simply
renting the vehicle for a specified period of time. Below is a list showing the
comparisons between buying/financing and leasing.
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Buying a Vehicle
(Suggested Time on Task 45 min.)
Subject Teaching Tips
Emphasize on the importance of having good credit.
Go over the section of how to establish credit for the first time and
discuss each of the steps.
Review the concept of total cost of ownership.
Work with participants the topic exercise.
Questions to generate discussion
Is vehicle ownership important to you?
Have you purchase a vehicle before?
How was your experience?
PowerPoint Slides Thumbnails Slide Notes
Follow the slide bullets and
promote discussion.
Emphasize that credit is based
on much you can afford to
borrow based on your income,
your payment history and the
amount you owe.
Review the decision process of
buying new or used based on
lifestyle choices, the amount to
borrow might be significantly
different.
Follow the slide bullets and
promote discussion.
Recommend that shopping
around for a loan might save
them money.
Emphasize to research vehicle
prices before visiting the
dealership, this will put them
in a better price negotiation
position to get the best
possible selling price, and thus
a lower loan.
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Looking and securing a loan by
themselves might be one
option to save money on
financing charges.
Suggest to plan months in
advance to save for a large
down payment.
Emphasize on the process of
applying for a loan;
Recommend to request a
credit report;
Researching the type of vehicle
which fits the best their
lifestyle and needs;
Once the vehicle is selected,
research the price using any of
the suggested sources.
Understanding vehicle options
and cost will put them in a
better negotiation position..
Emphasize that length of
financing varies depending if
the vehicle is new, used or
certified used.
Remind participants to keep in
mind their monthly budget to
determine the funds available
for vehicle total cost of
ownership; this will help them
determine how much they can
pay on a monthly basis.
Reference Materials
Edmunds Web site: www.edmunds.com
National Automobile Dealers Association Web site: www.nada.org
Kelley Blue Book Web site: www.kbb.com
Negotiating the car price
How To Negotiate A Great Deal When Buying a Used Car!
If you decide to buy a vehicle, you will need to obtain financing (unless you pay
cash for the entire price of the new vehicle). Financing a vehicle is also known
as ―obtaining a vehicle loan‖ or ―financing your vehicle‖. New vehicle loans
generally last between 3 and 7 years. Used vehicle loans terms vary widely.
The older or more expensive a vehicle is, the more interest you may be charged
and the more likely you will have a shorter loan installment repayment period.
When you finance a vehicle, your vehicle is the collateral - the lender keeps the
title until the loan is paid off. The ―title‖ indicates who the vehicle’s owner is. If
29
THE ABC’S OF VEHICLE FINANCING CURRICULUM
you do not pay the loan, the bank might repossess (take back) to obtain any loan
amount due.
Facts and tips on vehicle financing
Vehicle and home loans are two of the biggest expenses that we probably
will have in our lifetime
Understand exactly how much you are paying for the loan – understand
your interest rate and the amount of time you will be repaying your loan
Understand the exact amount that you need to borrow
Shop around to see who gives you the best deal
If you have a vehicle to trade-in, find out whether you have negative
equity (what you owe on the loan is higher than the trade in value of your
present vehicle).
Find out if there is a balloon payment (a final loan payment that is
considerably larger than the regular payments) at the end of the payment
term
Completing an Application
The next step after deciding the kind of vehicle that you want to purchase and the
amount that you can afford is to decide where to get the loan. Buyers can obtain
a loan in person or on line from the following sources:
Banks
Credit Unions
Thrifts (financial institution similar to a bank, but focused on personal
savings and loan accounts)
Finance companies
Small or used vehicle dealership self-financing
Larger dealership-originated financing
Finance Options
Direct Loan
The buyer obtains a loan (in person or online) directly from a bank, credit
union or finance company.
The buyer agrees to pay the amount financed plus a finance charge over a
period of time.
The buyer and the dealership enter a contract.
The buyer uses the proceeds from the direct lender to pay the dealership.
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Dealer Financing
The buyer and the dealership sign a contract.
The buyer agrees to pay the amount financed and a finance charge over a
period of time.
Loans may be offered through
Captive1 Manufacturer-affiliated finance companies
Dealership works with a clearinghouse organization for loan approvals
from non-captive2 finance companies
To secure the lowest offered rate, you might need to:
Make a larger down payment
Agree to a shorter-term loan
Have an excellent credit history
Auto-financing
You have the option of seeking your own financing sources. If you are a member of a
credit union you might take advantage of lower financial rates. The following are some
things to consider when considering this option.
Shop around for financing before going to the dealer;
Get pre-approved for a loan before you buy;
Compare APRs from different lenders;
Order your credit report a few months before shopping for a vehicle and
correct any errors;
Make the largest down payment you can
Pay for tags, title search and taxes in cash rather than financing them
If you are going to apply for a loan at the dealership, make sure you first
negotiate the best price on the vehicle
Auto-financing tips-what to look for
Deposits: If you need to give the dealer a deposit, make sure you know
whether you will get the money back if you change your mind. Get it in writing
Service contracts, credit insurance, extended warranties, and other options
are not required and can be costly over the term of the loan
Be wary of ads that promise loans for people with bad credit. These deals
often require a higher down payment or have a very high APR
1
A finance company owned by a manufacturer to finance dealers' inventories or to make loans to
consumers buying the company's products
2
Non-captive finance companies supply finance products marketed by other companies
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Negotiating a vehicle price
The average price of a new vehicle sold in the United States is more than
$28,000. That is why it is important to know how to make a smart deal
In order to make an offer check the Internet for resources regarding vehicle
pricing:
o Kelly Blue book: Web site: http://www.kbb.com/
o Edmunds: Web site: www.edmunds.com
o National Automobile Dealers Association: Web site:
www.nada.org
Negotiating a vehicle purchase
When planning to buy a car,
Do Your Research: Think about what car model and options you want and
how much you’re willing to spend. Do some research. You’ll be less likely to
feel pressured into making a hasty or expensive decision at the showroom
and more likely to get a better deal. Check the Internet (www.edumunds.com
or www.nada.org) for pricing information.
Plan to Negotiate on Price: Dealers may be willing to bargain on their profit
margin, often between 10 and 20 percent. Usually, this is the difference
between the manufacturer’s suggested retail price (MSRP) and the invoice
price.
Negotiation – before you visit the dealership
Explain that the negotiation for the purchase of a vehicle really starts well before
you even set foot in the dealership. It is important to know how much you can
afford, what you want to purchase, and how much it should cost.
Evaluate your financial situation and determine how much you can afford to
pay each month. A longer-term finance contract may mean smaller monthly
payments than a shorter-term finance contract (if all other terms are the
same) – but will result in more money paid over time on your contract.
Determine the price range of the vehicle you’re thinking of buying. Check
newspaper ads, the Internet, and other publications.
Understand the value and cost of optional credit insurance if you agree to
purchase.
Know the difference between buying and leasing a vehicle.
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Be aware that your credit history may affect the finance rate you are able to
negotiate. Generally, you’ll be able to get a lower rate if you’ve paid your
monthly credit obligations on time.
Compare annual percentage rates and financing terms from multiple finance
sources such as a bank, finance company and credit union. This information
may also be available from the finance sources’ and vehicle manufacturers’
Web sites.
Negotiation – While at the Dealership
Stay within the price range that you can afford.
Never bring up your trade-in until AFTER the negotiation.
Negotiate your finance and lease arrangements and terms.
Consider carefully whether the transaction is best for your budget and
transportation needs.
Understand the value and cost of optional products such as an extended
service contract, credit insurance or guaranteed auto protection, if you agree
to purchase.
If you don’t want these products, don’t sign for them.
Read the contract carefully before you sign. You are obligated once you
have signed a contract.
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Length of Financing Worksheet
Generally, contract terms range from two to six years-24 to 72 monthly
payments. The longer you take to pay, the lower the payments will be, but the
finance charges will be higher.
Below is a comparison of the monthly payments, total finance charges, and
payment total for the same priced vehicle with no down payment and different
terms:
APR Length of Monthly Total Finance Total of
Contract Payment Charge Payments
10% 24 months $923 $2,149 $22,149
10% 36 months 645 3,220 23,220
10% 48 months 507 4,336 24,336
10% 60 months 425 5,500 25,500
10% 72 months 371 6,684 26,684
In this example, no taxes title or registration fees have been included. Those
amounts will be extra.
Exercise
Answer the following questions pertaining to the chart above.
1. What is the total amount you would save if you chose a 36-month contract
over a 60-month contract? $__________________
2. What is the difference in monthly payment between 48 months and 60
months? $________________
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Down Payment
A way to lower your monthly payments is making a down payment. Compare
how the monthly payments change with a different down payment*:
Monthly Payment
$331 $312 $294 $276
______________________________________________________
$0 $1000 $2000 $3000
Down Payment
*$18,000 financed, 3.9% APR, 60 month term
Lien on the Vehicle
While you are making payments on your vehicle, the lender will put an automatic
lien on your vehicle. This means that your debt is secured by the vehicle and
you will receive a clear title after all monies owed on the loan have been paid.
After you have paid off your vehicle in full, the financial institution is obligated to
send you a notice or letter stating that the debt has been repaid in full. As soon
as you receive any of these documents, contact your state’s department of motor
vehicles and request a ―clear‖ title where the vehicle will appear in the owners
name only and all liens from the vehicle loan creditor will be removed. Contact
your lender, if you don’t get this document within 30 days of your last payment.
Repossession and Your Credit
As we discussed previously, there are consumer laws that protect your rights as
a buyer. However, along with consumer rights, the law prescribes consumer
responsibilities. Once you have entered into a contract to buy a vehicle, it is your
responsibility to make monthly payments as agreed and contact your creditor if
you can’t make the payments. A creditor has the right to repossess (take back)
your vehicle if payments are not made as agreed.
If you have anything repossessed such as a vehicle or other belongings, it is
going to affect your credit negatively. If you think that you are nearing the point
of repossession try to contact your debtor and see if you can make some
arrangements to pay some other way or some other price. You should avoid
repossession at all costs. Both leave a negative effect on your credit score and
will remain with you for many years.
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Voluntary Repossession
Voluntary repossession looks as bad on your credit as if the creditor came and
took the property from you. The only difference is that if you voluntarily return
your vehicle, you could save on some fees associated with its collection. Either
way, the derogatory notation will stay on your credit bureau file for seven years.
Remember, preventing repossession is easier than trying to dispute it
afterwards. If you are unable to make a timely payment, contact your creditor
or lessor immediately.
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Vehicle Insurance
(Suggested Time on Task 20 min.)
Subject Teaching Tips
Emphasize on the fact that the vehicle is an asset and importance of
securing this asset.
Check your state DOT vehicle insurance requirements; discuss them
during the class, emphasize that those are minimum legal
requirements which do not necessarily cover their investment.
Questions to generate discussion
Why we need vehicle insurance?
Can you drive the vehicle out of the dealership without insurance?
What are our state minimum vehicle insurance requirements?
Do you understand the different insurance coverage?
Is there a relationship between your driving record and insurance
cost?
PowerPoint Slides Thumbnails Slide Notes
Use slide bullets to promote
discussion.
Define insurance as the
protection against a specific
loss over a period of time that
is secured by the payment of a
regularly scheduled premium.
Use slide bullets to promote
discussion.
Participants can order a copy
of their driving record from
www.dmv.org
Emphasize that their credit
score do have an impact on
their insurance premium.
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Define GAP insurance.
Ask how many have or know
about GAP insurance.
Reference Materials
Insurance cover analyzer
How to obtain a driving record
ASPIRA’s Insurance Education Program
38
THE ABC’S OF VEHICLE FINANCING CURRICULUM
Vehicle Insurance
Before you can drive your
vehicle out of the dealership,
you need to have appropriate
vehicle insurance. Most states
require you to purchase a
specified amount of insurance
coverage. Creditors and
lessors have minimum
requirements spelled out in the
lease agreement or installment
contract. Listed below are the
most common forms of
coverage:
Type of Coverage What is Covered
Liability Liability insurance pays for bodily injury and
property damages (expenses) to other
drivers and their vehicles, if you are at fault.
This might include medical bills, lost wages,
repair or replacement of things you
damaged in the accident and legal costs for
your defense.
Medical Payments Regardless of who caused the accident,
reimburses drivers and their passengers for
medical and funeral expenses.
Personal Injury Protection Some states have ―No Fault‖ insurance
or ―No Fault Insurance‖ regulations that may include medical
payment insurance and payment for lost
wages.
Uninsured/ If a hit-and-run driver or someone who
Uninsured doesn’t have insurance strikes you, it
Motorist pays for your injuries; pays out if the driver
who injures you causes more damage than
his or her liability insurance covers.
Minimum requirements for liability insurance might be imposed by the state in
which the vehicle is registered.
Higher limits of liability insurance are required by lease agreements. These can
be more costly and not available depending on the applicant’s driving records
and other factors.
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Physical Damage
Type of Coverage What is Covered
Collision: Covers damage to your vehicle resulting from a collision
with another vehicle or object unless the other party or
their insurance company has agreed to pay for the
damage.
Comprehensive: Covers damage to your vehicle by events other than a
collision such as flood, fire, hail, theft, or vandalism.
Rental Reimbursement: Coverage for vehicle rentals if your vehicle is damaged
or stolen.
Towing and Labor: If your vehicle breaks down on the road, pays for towing
and labor charges.
Auto Replacement: Pays for the full replacement value of the vehicle, even if
these costs exceed its actual cash value.
Collision and comprehensive coverage usually have a deductible (the amount that
you must pay the repair facility for work when vehicle is being repaired).
All lease vehicle agreements require physical damage coverage for the term of the
contract or lease agreement.
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Buying Insurance
One of the most important decisions to make when buying or leasing a vehicle is
buying insurance. Insurance is a cost attached to the life of your vehicle;
therefore, it is important to shop around for the best price and the best coverage.
The following is a list of things to consider when buying an insurance policy:
Review your insurance needs and circumstances.
Shop around, contact several companies to compare benefits, coverage,
exclusions, and premiums.
Do not make quick decisions; compare policies from different insurance
companies.
Be sure that your application is complete and accurate.
Write a check to the insurance company, do not pay in cash.
Your policy and proof of insurance vehicleds should arrive within 60 days;
if you don’t receive it, contact the company and agent.
Read your policy to make sure everything is correct and ask your agent to
explain any terms that are not clear.
Keep in mind that you don’t need several policies from different
companies; you only need one good one.
Factors in Setting Rates
If your vehicle has certain features, you can save on insurance. Safety features
such as airbags, anti-lock brakes, and anti-theft devices often qualify a vehicle for
premium discounts. Vehicles are also rated by insurance companies on collision
repair costs, claims experience and popularity among thieves. The better the
rating, the lower the costs for comprehensive and collision insurance.
The following is a list of factors used by the insurance companies to determine
rates:
Type of vehicle: Make, model, year, safety features, repair and theft record
Personal characteristics: Age, gender, marital status, previous insurance
claims, type and frequency of vehicle use (for example,
commuting)
Geographic location: Statistics on accident, theft and vandalism in cities;
whether you live in a city or a small town (usually rates are
higher if you live in a city)
Driving record: Number and type of moving violations, points on your
record and years insured with the company
Insurance credit scores: Your insurance score is calculated using
information from your credit report which could impact the
amount of your premium.
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Your insurance company cannot use the following rating criteria to determine
how much you should pay for automobile insurance:
credit history,
bankruptcy,
employment status,
whether you own a credit card,
how long you have lived in your current home,
not-at-fault accidents,
whether your vehicle is owned or leased, and
whether there was a period of time where you had no automobile
insurance coverage.
Gap Protection
An optional insurance product offered by insurance companies is known as
loan/lease gap protection. This type of coverage is optional, but its worth having
in the event that your vehicle is totaled before it is paid off or the lease period is
up and you owe more on the vehicle than it is determined to be worth as a total
loss. For example, if you owe $8,000 on your loan, but the value of the total
vehicle is only $6,000 then that is all the insurance company is obligated to pay
for the loss of your vehicle. You will still owe $2,000 on a vehicle that you no
longer have. If you have loan/lease gap coverage, the $2,000 will be covered by
your gap agreement.
To determine whether you need to purchase loan/lease gap coverage just
compare what is currently owed on the vehicle with its current book value. If
there is a substantial difference that you could not afford to pay out of pocket if
the vehicle is totaled, then is worth looking into this insurance option.
Disability Insurance
Another insurance option offered by insurance companies is disability insurance.
Industry experts say that disability insurance is the most overlooked of all
personal insurance products. People usually insure their vehicles, homes, lives,
but have a tougher time insuring their income. In the event of a disability,
however, bills such as mortgage or rent, utilities, food, loans, clothing, and auto
expenses will still need to be paid. Disability insurance will help protect against
financial risk by providing benefits at a level proportionate to pre-disability
earnings. The way benefits are paid, the amount and frequency are all
determined by the policy contract.
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Optional After Sale Products
(Suggested Time on Task 20 min.)
Subject Teaching Tips
Define what are “after sale products”.
Emphasize that the acquisition of these products can be paid cash or
included on the vehicle loan.
Discuss what are vehicle service contracts?
Questions to generate discussion
What options you need or want for your vehicle?
How much they cost?
What is their impact on the vehicle cost?
Do you know what is a extended warranty service contract?
PowerPoint Slides Thumbnails Slide Notes
Ask participants to list some of
the after sale products they
are interested in acquiring and
how much they cost.
Make them aware that if not
paid cash, these items will
increase the vehicle sale price
and thus the financing.
Discuss what are service
contracts.
Reference Materials
How To Buy An Auto Extended Warranty & Avoid Scams
You may be offered a variety of products that could enhance the operation or
appearance of your vehicle once you have chosen the vehicle you want to buy.
Some of the products you may be offered are:
▪ DVD Player ▪ Truck Bedliner ▪ Alarm System
▪ CD Player ▪ Heated Seats ▪ Security System
▪ Sunroof ▪ Leather Seats ▪ Navigation System
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
All of these products and any other additional products that you might want will
cost you an additional amount of money that will be added to the sales price.
You have the right to choose or refuse any optional products presented to you.
Some people buy the same vehicle but end up with different monthly payments
because of the options they have chosen to add to their vehicles.
Vehicle options and their impact on your payment
Vehicle A Vehicle B
Selling Price $21,000.00 Selling Price $21,000.00
Alarm/Security $800.00 DVD player $500.00
System
Moonroof $1,250.00 Custom Tires $300.00
Cash Down Payment $2,000.00 Cash Down Payment $2,000.00
Total Due at Signing $2,000.00 Total Due at Signing $2,000.00
Amount Financed $21,050.00 Amount Financed $19,800.00
Loan Term 48 months Loan Term 48 months
APR 10% APR 10%
Finance Charges $4,576.00 Finance Charges $4,300.00
Total of Payments 25,626.00 Total of Payments $24,100.00
Monthly Payment $534.00 Monthly Payments $502.00
Exercise
Place a check next to the item included in the payment amounts listed in Vehicle
A and Vehicle B options and their impact on your payment‖:
Options $502.00 $534.00
Monthly Payment Monthly Payment
Alarm
DVD player
Moonroof
Custom Tires
Credit Life
Service Contract
Adding optional products has an impact on the amount financed as well as in
your monthly payment amount. Negotiate with the dealership to include some of
the optional products in the already agreed selling price of the vehicle.
Sometimes, the dealership will offer you a package that includes the optional
products you are interested in at a lower price.
As discussed above the following are other optional products on the finance
contract or lease agreement might be:
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Credit Life Insurance: an option to choose life insurance to cover
the credit extended with a finance contract or lease agreement
Disability Insurance: insurance that will cover your scheduled
monthly payments in the event of a sickness or disability
Gap Protection: a product that pays the difference between a
total loss insurance settlement and the net schedule payoff of your
finance contract or lease agreement.
Service Contract
Unlike vehicle insurance, the service contract covers repairs due to mechanical
or electrical failures that occur during normal use of the vehicle. This product is
likely to be offered to you when you purchase or lease a vehicle, particularly a
used vehicle.
A service contract:
Supplements the vehicle warranty
Protects vehicle owners against unexpected major covered vehicle repair
expenses
May provide convenience options, like vehicle rental, when your vehicle is
being repaired
Typically, service contracts provide repair protection for mechanical and other
components that can range in cost from a few dollars to a few thousand, like
replacing an engine. Some convenience options like rental, towing and even
maintenance may be offered as part of the package.
Before you purchase a service contract, determine what warranty comes with the
vehicle. Most new vehicle warranties provide coverage for a specified period of
time. Once you know what warranty comes with the vehicle, you can evaluate
what you need and what you can afford.
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Questions to Ask Before You Purchase a Service Contract
Need Afford
Will you keep the vehicle after the warranty Can you afford a more expensive
expires? monthly payment
How important to you are the various Can you afford to pay for the contract
service contract features? in cash to avoid additional finance or
rent charges?
Will you be able to pay for a major repair
bill?
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Self-Test: Are You Ready to Buy a Vehicle?
This self-evaluation should give you an idea of whether you are ready to buy a
vehicle. Please make a check mark on the appropriate column as you answer
the following questions:
Questions Yes No
Are you sure you want to buy a vehicle?
Do you have stable income and stable employment?
Do you plan to keep the same vehicle for the next few years –
depends on the reason for which you are buying the vehicle
Have you created a budget so you know how much you can
afford?
Do you have an established credit history?
Do you pay for your bills on time?
Do you have money saved for a down payment, insurance and
vehicle registration?
Have you considered different finance/lease options?
Are you ready to take on an additional monthly payment?
Have you weighed your wants vs. needs to arrive at an
affordable vehicle payment?
If you answered ―yes‖ to the majority of
questions listed above, you are
probably near-ready to buy a vehicle.
If you answered ―no‖ to the majority of
questions listed above, particularly
questions 2, 3, 5, 6, 7,8 and 9, you
probably need a longer time to get
ready to buy.
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Section Review
Choose the best answer, place a check mark on the box: (Suggested Time on Task 20 min)
1. Optional gap protection can be added to the lease
agreement.
□ True
□ False
2. An example of additional items that can usually be
added to the finance contract is
□ Gap Protection
□ Credit Life Insurance
□ Service Contract
□ All of the above
3. Optional Credit Life Insurance is only available with
a lease agreement.
□ True
□ False
4. What is the purpose of a service contract?
□ Adds additional time to the vehicle warranty
□ Protects owners against unexpected auto
repair expenses
□ Pays for all vehicle repairs regardless of the
circumstances
□ All of the above
5. Your monthly payment can be lowered with a down
payment
□ True
□ False
6. When you finance at the dealership, you are
entering into an installment sales contract between you
and the dealership.
□ True
□ False
7. A copy of the vehicle lease agreement should be
carefully read
□ True
□ False
8. Options costs that may result in a higher vehicle
payment might be
□ Heated seats
□ DVD player
□ Leather seats
□ All of the above
9. Term is the length of the lease agreement or finance
contract in months
□ True
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
□ False
10. A Finance Charge is the total dollar amount you
pay to use credit
□ True
□ False
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THE ABC’S OF VEHICLE FINANCING CURRICULUM
Additional Learning Resources
Federal Trade Commission (FTC) — Provides free
online consumer information and resources for auto
leasing, purchasing and financing
National Association of Auto Dealers (NADA) — Web
site provides auto financing resources for consumers
Kelley Blue Book — Provides consumers with vehicle
pricing and values for new and used vehicles, and
resources for auto financing
Web Sites and contact information
Edmunds
• Web site: www.edmunds.com
National Automobile Dealers Association
• Web site: www.nada.org
Kelley Blue Book
• Web site: www.kbb.com
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