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Teacher's Guide Lesson SixCars and Loans04/09

cars and loans websitesBeing prepared is the best way to keep car-buying choices and decisions on theright track. Students need to examine all aspects of the car-buying processincluding: understanding the differences between buying and leasing; evaluatingused cars; financing; applying for loans; and finding the best auto insurance.For related links and resources on this lesson, calmoneyskills.com cars and loansteacher's guide 6-i

cars and loans lesson outlineoverview“Should I buy a new car or a used car?”“Where is the best place to finance my automobile purchase?”“Is it better to take the rebate or the low-rate financing plan?”These are typical questions asked by people buying vehicles. In this lesson, students are asked toidentify costs associated with owning and operating a motor vehicle. Since these costs are commonlyunderestimated, guidelines are provided on how much to spend when buying vehicles.The material provided in this lesson will address the many factors and decisions involved inpurchasing and financing a vehicle. In addition to comparing used and new cars, we also coverwarranties, service contracts, and financing the purchase. Other issues related to using credit forbuying a car include the information required by the Truth-in-Lending law, use of a co-signer,and repossession.Finally, various aspects of auto insurance are discussed. Students will learn about types of coverages,factors affecting insurance costs, and comparing insurance companies.goalsInvestigate the legal and financial responsibilities of buying, maintaining, insuring, andoperating a car, and translate those responsibilities into a monthly budget.lesson objectives List some of the costs of owning and operating a car Given a budget, decide how much you can afford to pay for a carList some of the things you should research and some decisions you should make beforeyou begin to shop for a car Understand the differences between various kinds of warranties and service contracts List some steps you can take to resolve warranty and service contract disputes List some of the factors to consider when shopping for a car loan Calculate the total cost of various car loans Understand what a co-signer is, and describe when one is necessary List the responsibilities of a co-signer and of the person getting the loan List some of the factors to consider when shopping for car insurance List some of the factors used to set car insurance rates Understand the circumstances under which a vehicle can be repossessed, and list the legalrights and responsibilities of the creditor and of the debtorGiven a budget, decide how much money can safely be spent each month to own, operate,and maintain a carKnow the advantages and disadvantages of leasing a motor vehiclewww.practicalmoneyskills.com cars and loansteacher's guide 6-ii

cars and loans lesson outlinepresentation slides6-Acosts of owning and operating a motor vehicle6-Bhow much can you afford? (the 20-10 rule)6-Cconsumer decision making6-Dshopping for a used car6-Esources of used cars6-Fshopping for a new car6-Gwarranties6-Hservice contracts6-Ishopping for a car loan6-Jhow to calculate the total cost of a loan6-Kthe Truth-in-Lending act6-Ltypes of auto insurance coverage6-Mhow insurance rates are set6-Nrepossession6-Oleasing a motor vehiclestudent activities6-1Operating Costs of a Motor Vehicle 6-26-36-4Have students estimate various costs associated with owning and operating amotor vehicle.Warranties and Service Contracts Have students collect examples of automobile warranties and service contracts. Discuss how various warranties and service contracts differ.Shopping for a Car Loan Have students shop for and compare the costs of car loans. Discuss the factors that influence the total cost of a loan.Shopping for Insurance Have students research the cost of car insurance based on their age, gender, maritalstatus, frequency of car use, where they live, driving record, types of cars they want,and the amount of insurance they think they need vs. what may be required by the state.www.practicalmoneyskills.com cars and loansteacher's guide 6-iii

cars and loans lesson outline 6-5How Much Would You Spend 6-6Discuss their findings—would the cost of insurance alter their budgets or changetheir plans about the types of cars they want? Can they still afford cars?Using the scenarios provided, have students decide how much can be spent safelyeach month to own, operate, and maintain a car.Lesson Six QuizFor more information, please refer to the Appendix.www.practicalmoneyskills.com cars and loansteacher's guide 6-iv

cars and loans target audiencesLearning activities appropriate to varied target audiences for lesson sixactivityteenagers(14 -18)young adults(19 - 25)adults(26 )Survey/InterviewStudent Activity 6-1Field ActivityWeb ActivityStudent Activity 6-2Student Activity 6-3InterviewOral PresentationStudent Activity 6-4Student Activity 6-5Lesson Six Quiz 6-6www.practicalmoneyskills.com cars and loansteacher's guide 6-v

cars and loans teaching notescosts of owning a car1.Initial purchase price2.Registration and title costs3.Sales tax4.Financing costs5.Depreciation6.Insurance7.Scheduled maintenance8.Storage (renting garage space)discussionsurvey/interviewHave students obtaininformation from severalpeople about the factorsthat influence theirselection of a motorvehicle.slide 6-Acosts of operating a car1.Unscheduled repairs and maintenance2.Gasoline3.Oil and other fluids4.Parking and tolls5.Ticketshow much can you afford?1.The 20-10 rule2.Working with a budgetwww.practicalmoneyskills.com cars and loansdiscussionstudent activity 6-1discussionslide 6-Bteacher's guide 6-vi

cars and loans teaching notesshopping for a car1.Consumer decision making 2.A used car from a dealer 3.Consider costs, reliability, dealer reputationRead the “Buyer’s Guide” stickerConsider the warranty and the service contractWhat to do if you have problemsA used car from a private party 4.Deciding to spend your moneyDeciding on the right purchaseSometimes includes manufacturer’s warrantyDifference in price compared to a dealerA new car Read about new car features and pricesShop aroundPlan to negotiate priceLearn the termsConsider the service contractwww.practicalmoneyskills.com cars and loansdiscussionfield activity:Compare prices andservices at various sourcesof used cars.web activity:Go to edmunds.com orkbb.com for informationon current prices formotor vehicles.slides 6-C, 6-D, 6-E &6-Fteacher's guide 6-vii

cars and loans teaching notesabout warranties and service contracts1.Types of warranties As-is warrantyImplied warrantyDealer warrantyManufacturer’s warranty2.Service contracts3.Preventing problems4.Resolving disputes5.Comparing promises of warranties and service contractsshopping for a car loan1.APR2.Length of loan3.Monthly payments4.Total finance charge5.Total to be repaid6.Shop around for a car loan and compare the costshow much does it really cost?1.How to approximate the total cost of a loan2.discussionstudent activity 6-2slides 6-G & 6-Hdiscussionstudent activity 6-3slide 6-IdiscussionHow to approximate monthly paymentsslide 6-Jwww.practicalmoneyskills.com cars and loansteacher's guide 6-viii

cars and loans teaching notesthe truth-in-lending act1.What it covers2.How it protects you, the consumerdo you need a loan co-signer?1.What a co-signer is2.When you need one3.Responsibilities YoursCo-signer’sabout auto insurance1.Importance of and legal requirements2.slide 6-Kdiscussioninterview:Talk to someone who hasco-signed a loan to learnmore about this situation.discussionTypes of coverage 3.discussionBodily injury liabilityProperty damage liabilityCollisionComprehensiveMedical paymentsUninsured motoristRental reimbursementTowing and laborHow insurance rates are set AgeSexMarital statusPersonal habits (e.g., smoking)Type of useFrequency of useLocationDriving record deductibleType of carValue and age of carwww.practicalmoneyskills.com cars and loansoral presentation:Have students preparea video or in-classpresentation withsuggestions for reducingthe cost of auto insurance.slides 6-L & 6-Mteacher's guide 6-ix

cars and loans teaching notesabout auto insurance (continued)4.Investigate the cost of car insurance in your area Type of coverage Type of car Cost factorsstudent activity 6-4how much would you spend?1.Cost of driving off lotdiscussion Down paymentTaxLicenseOther2.Car payment3.Monthly operating costs4.Monthly maintenance costs5.Monthly insurance premium6.Unplanned maintenance and operating costsabout repossession1.Reasons for2.Creditor rights 3.slide 6-NBuying the car backYour legal responsibilities 5.discussionYour rights 4.Seizing the carReselling the carstudent activity 6-5Paying the deficiencyWhat you can doleasing a motor vehicleslide 6-Olesson six quizquiz 6-6www.practicalmoneyskills.com cars and loansteacher's guide 6-x

how much would you spend?answer keycar for 6,000 (Amount of loan: 6,000)10%APR:12%APR:Length of Loan:60 monthsLength of Loan:Total Cost of Loan: 7,648.94Total Cost of Loan: 8,008.00Monthly Payment: 127.48Monthly Payment: 133.47Total Finance Charge: 1,648.94Total Finance Charge:14%APR:60 months 2,008.0016%APR:Length of Loan:60 monthsLength of Loan:Total Cost of Loan: 8,376.57Total Cost of Loan: 8,754.50Monthly Payment: 139.61Monthly Payment: 145.91Total Finance Charge: 2,376.57Total Finance Charge:60 months 2,754.50car for 8,000 (Amount of loan: 8,000)10%APR:12%APR:Length of Loan:60 monthsLength of Loan:Total Cost of Loan: 10,198.58Total Cost of Loan: 10,677.33Monthly Payment: 169.98Monthly Payment: 177.96Total Finance Charge: 2,198.58Total Finance Charge:14%APR:60 months 2,677.3316%APR:Length of Loan:60 monthsLength of Loan:Total Cost of Loan: 11,168.76Total Cost of Loan: 11,672.67Monthly Payment: 186.15Monthly Payment: 194.54Total Finance Charge: 3,168.76Total Finance Charge:www.practicalmoneyskills.com cars and loans60 months 3,672.67student activity key 6-5

how much would you spend? answer keycar for 10,000 (Amount of loan: 10,000)10%APR:12%APR:Length of Loan:60 monthsLength of Loan:Total Cost of Loan: 12,748.23Total Cost of Loan: 13,346.67Monthly Payment: 212.47Monthly Payment: 222.44Total Finance Charge: 2,748.23Total Finance Charge:14%APR:60 months 3,346.6716%APR:Length of Loan:60 monthsLength of Loan:Total Cost of Loan: 13,960.95Total Cost of Loan: 14,590.83Monthly Payment: 232.68Monthly Payment: 243.18Total Finance Charge: 3,960.95Total Finance Charge:60 months 4,590.831. Which car can Manuel afford?The car for 6,0002. What are the terms of the loan that would allow Manuel to buy a car and still stay withinhis budget?A 60-month loan with an APR of 10%3. Using the column “How You’d Do It” on Manuel’s budget worksheet, figure how you would setup a budget if you had Manuel’s income and expenses.4. What were the main differences between the budget you set up using Manuel’s income andexpenses and the budget that was provided?www.practicalmoneyskills.com cars and loansstudent activity key 6-5