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