Deal or No Deal - Buying A Car

Deal or No Deal: Understanding Vehicle Loans
Down payment, interest rate, loan term—the lingo involved with buying a vehicle can seem overwhelming. Find out
more about the vehicle-buying process and terminology by following the steps below.
STEP 1: Decide on a make and model. Be realistic!! As a high school/college student you cannot afford a $50,000
vehicle.
Visit www.truevehicle.com or www.cars.com or www.autotrader.com or www.Edmunds.com or www.kbb.com to find

the price of the vehicle you would like to buy; then record it here.
My Vehicle (Make, Model, Year): _2017 Ford Fusion_
Price of the Vehicle: _$20,557____________________
Tax (7%): _$1,439___________________________
Tag, Title, and Dealer Fees: _____$600.00______
Total Purchase Price: $_22,596_____________________
STEP 2: Determine how much money you will need to borrow. You have been saving money for the past couple of years
and you have $2000.00 to use for a down payment (the amount you give to the dealer on the day of purchase). Subtract
the down payment from the total purchase price. The resulting total is the loan principal; record that amount here and
in the chart below.
Loan principle: $_20,596__________________.
STEP 3: Get quotes from several lenders. The term and interest rate of the loan will vary, and these factors will affect
your monthly payment.
(For this exercise, pretend that you have received the rates below.)
STEP 4: Calculate your monthly payment and total amounts paid.
Your monthly payment is your principal divided by the number of months in your loan term, and then multiplied by your
interest rate. Next, multiply the monthly payment by the loan term to determine the total amount paid. You may also
search Google for an “Auto Loan Calculator”.
Record your monthly payments and final amounts paid in the chart below.
Lender Loan Principal Loan Term Interest Monthly Total Total Interest
Rate Payment Amount Paid Paid
Scenario 1 $20,596 36 months 6.75% $634.00 $22,809.00 $2,213.00
Scenario 2 $20,596 48 months 4.75% $472.00 $22,655.00 $2,059.00
Scenario 3 $20,596 48 months 5.99% $484.00 $23,213.00 $2,617.00
Scenario 4 $20,596 60 months 3.75% $377.00 $22,619.00 $2,023.00
Scenario 5 $20,596 72 months 5.50% $336.00 $24,228.00 $3,632.00
STEP 5:
Decide which loan makes the most sense for you. Which do you think is the best option above? Why?
A: I think the best option is Scenario A because it’s relatively cheaper and a used car is typically less expensive, so it’s
easier to get financed.
More Questions to Ask When Buying a Vehicle:
Why do you need a vehicle? __I need it to go from place to place (home, work, shopping, etc.)__
What’s the gas mileage (MPG - Use the AVERAGE of the city and highway rates)? _____25___________ (Vehicles with
higher gas mileage require less fuel).
Determine your gas costs for the month based on driving the car 12,000 miles per year (Average) and the Miles per
Gallon (MPG) rate you found.
For example, if your average gas mileage is 25 mpg, take 12,000 and divide by 12 (months) to get 1000 miles a month.
Take 1,000 and divide by 25 (your average miles per gallon) and then multiply by the cost of a gallon of gas. We’ll say
$3.00 for this scenario.
Gas Costs for the Month: _____$120.00______________________________
Insurance
Insurance is determined based on your age, gender, academic achievements, traffic offenses, and any other questions
that the insurance companies ask. The type of vehicle that you select will affect the insurance coverage. Use the
amounts in the table below to calculate your insurance.
Start with a yearly insurance premium rate of $1200. Add the following amounts based upon your personal
information.
Gender Male + $600 Female + $0

Age 16-18 + $480 18-21 + $240
Average B or Higher - $120
Tickets Speeding Ticket(s) + $240
Address Macon + $600 Lizella + $300
Yearly Insurance Cost: _$2,760.00_______________ Monthly Insurance Cost: ___$230.00______________
Maintenance Costs.
Some of these costs will fall under the vehicle's warranty and others will have to be absorbed by you, the buyer.
Maintenance costs for new vehicles are approximately $100 per year based on a $25 charge, every 3 months. This
charge includes oil/filter changes, lubrication, and adjustments. However, as vehicles become older maintenance costs
increase. If maintenance costs increase by 150% for each year beyond the first year in service, what will your
maintenance cost be for a 5-year-old vehicle? If you purchase a vehicle older than 5 years you need to calculate the
costs for how old your vehicle is.
VEHICLE MAINTENANCE COSTS
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
YEARLY COST $100 $150.00 $225.00 $337.50 $506.25
Resale Value. Some used vehicles are more desirable than others— visit www.kbb.com to find the resale value of your
vehicle. What is the resale value? _____$15,300.00_____________________________
Think About It
1. Do you think that buying a 5-year-old or older vehicle is a better deal if you include maintenance costs in the
overall price? A: Yes. It may be more money, but it wouldn’t be so expensive like newer cars.
2. What are the advantages of buying a used vehicle versus a new vehicle? What are the disadvantages?
A: Newer vehicles have the latest technology, (often) lower interest rates, and a warranty, but they’re more
expensive than used cars. Used cars cost less, can have lower insurance rates, and are easier to save money on,
but they’re not completely reliable (maintenance repairs are typically needed).
3. Did this activity give you a better understanding of what a vehicle actually costs? Explain
A: Yes because it gives me a deep insight of the components/factors of vehicle costs.

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What are the main factors that determine the total cost of a vehicle?

What are some advantages and disadvantages of buying a used vehicle versus a new one?

Deal or No Deal: Understanding Vehicle Loans

Visit www.truevehicle.com or www.cars.com or www.autotrader.com or www.Edmunds.com or www.kbb.com to find

My Vehicle (Make, Model, Year): _2017 Ford Fusion_

Price of the Vehicle: _$20,557____________________

Tax (7%): _$1,439___________________________

Tag, Title, and Dealer Fees: _$600.00__

Total Purchase Price: $_22,596_____________________

Loan principle: $_20,596__________________.

STEP 4: Calculate your monthly payment and total amounts paid.

Gas Costs for the Month: _$120.00__________________________

Gender Male + $600 Female + $0

Yearly Insurance Cost: _$2,760.00_____________ Monthly Insurance Cost: _$230.00______________

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