Out & About # 8
Car Loan Project
Task: You are going to buy a car that will need to be financed. Look at different options and decide which will be the best choice for your situation. You’ll hand in a report that details your findings. You will use economic concepts and mathematical calculations in deciding what car to buy and how to finance the purchase. Process:
1. Find an advertisement for a car that you would like to purchase. Remember to look at different options and discuss with your parents which car will best suit your needs. For the cars you consider, use "Edmunds Car Buying Guide" at http://www.edmunds.com to learn how the advertised prices compare with market prices generally for cars of the same make, year, and model. Make sure to find the TMV (TRUE MARKET VALUE) of your car. Shop around online to see which dealer has your car at least cost to you. 2. Decide whether you will have a down payment or a trade-in. Use the Kelly Blue Book site to find the realistic selling price of your old car. If you can’t put down actual information, you may make it up. 3. Determine the amount you will be financing on the car and find an auto loan that suits your pocket. Calculate the monthly payment according to the amount of borrowed principal for each option in the table below by using the auto loan calculator at http://www.edmunds.com. If you find a better deal, use those values also to compute your monthly obligations. The "Amortization Calculator" at http://www.bankrate.com/brm/amortization-calculator.asp may be helpful in calculating the payment schedule from beginning to end. Fill out the Cascade Bank auto loan application form at http://www.cascadebank.com/personalbanking/pdfs/Consumer_credit_app.pdf.
Loan I II III
Interest Rate 6% 9.75% 10.25%
Length in Years 5 3 4.5
4. Tell what your best loan option would be. Justify that conclusion. Discuss what situations might make you decide not to take each of the following: The The The The lowest interest rate smallest monthly payment shortest time loan with the lowest cost
That completes the math behind the
PURCHASE of the car.
Besides these loan and financing documents, you must also hand in copies of and the cost for the following: A. B. Service contracts (extended warranties) you entered in, if at all Bill of sale for used car traded in or sold privately, and registration of new car – all at the DMV site
5.
Now it is time to compute the TRUE COST TO OWN coverage, and then tell what type you chose. TCO values are the annual operating costs, e.g.: I. II.
(TCO) of the car. Shop around for auto insurance
Fixed costs such as depreciation, insurance, interest on loan, license & registration (DMV) Variable costs such as gas, oil changes, tires, repairs, and possible parking & tolls
All of these can be found with the TCO calculator available at the Edmunds.com website. Express these annual operating costs as cost per mile (estimate the annual amount of miles) 6.
Final Report!
The following information must be included in your final report:
An ad for the car of your choice and its TMV value A completed loan application, bill of sale, and registration of new vehicle Monthly payments for each option calculated by using the monthly payment formula. Total cost of the loan for each option (monthly payment multiplied by number of payments). Printed copy of an amortization schedule of the loan option that is best for your situation A word-processed summary of which is the best loan option for your situation along with a reason The TCO costs The cost per mile that you anticipate in the average year The TOTAL cost of the car in its first year: purchase costs and first year operating expenses (incl. insurance and financing) A summary of what you learned from this project.
RESOURCES 1. Insurance and Loan a. Lending Tree.com b. Bankrate.com c. Interest.com d. Moneycentral.com e. Practicalmoneyskills.com f. E-loan.com g. E-insurance.com h. Smartmoney.com Fees:. DMV.ca.gov 3. Car Advice i. j. k. l. m. n. o. Edmunds.com www.kbb.com caranddriver.com motortrend.com carfax.com carsdirect.com autotrader.com
2.
Kelly Blue Book