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Family Economics & Financial Education June 2006 Transportation Unit Shopping for an Automobile Loan (BAII Plus) Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Automobiles
Family Economics & Financial Education June 2006 Transportation Unit Shopping for an Automobile Loan (BAII Plus) Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Automobile Loans
Family Economics & Financial Education June 2006 Transportation Unit Shopping for an Automobile Loan (BAII Plus) Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Definitions
Lender a financial institution who offers loans to consumers Credit Rating evaluation of a persons credit history
Based on repayment patterns, prior credit usage, credit history, length of employment
Family Economics & Financial Education June 2006 Transportation Unit Shopping for an Automobile Loan (BAII Plus) Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Definitions continued
Cosigner a person who guarantees the loan for the original borrower
Responsible for paying the debt back if the original borrower defaults
Borrower fails to make payments of principal or interest when due and has not met other requirements of the legal contract
A cosigner may be required for a loan if the original borrower does not have a credit history or has a bad credit rating Common for parents to cosign for young adults
Family Economics & Financial Education June 2006 Transportation Unit Shopping for an Automobile Loan (BAII Plus) Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Definitions continued
Family Economics & Financial Education June 2006 Transportation Unit Shopping for an Automobile Loan (BAII Plus) Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Lender Options
Auto Dealers Commercial Banks Savings and Loans Credit Unions Online lenders Life Insurance Policies Auto Insurance Companies
Family Economics & Financial Education June 2006 Transportation Unit Shopping for an Automobile Loan (BAII Plus) Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Family Economics & Financial Education June 2006 Transportation Unit Shopping for an Automobile Loan (BAII Plus) Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Consumer Rights
Requires clear disclosure of key terms and all costs in lending agreements
Family Economics & Financial Education June 2006 Transportation Unit Shopping for an Automobile Loan (BAII Plus) Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Family Economics & Financial Education June 2006 Transportation Unit Shopping for an Automobile Loan (BAII Plus) Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Family Economics & Financial Education June 2006 Transportation Unit Shopping for an Automobile Loan (BAII Plus) Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Family Economics & Financial Education June 2006 Transportation Unit Shopping for an Automobile Loan (BAII Plus) Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Variables of a Loan
Negotiated Price
Price being paid for the automobile agreed upon by the seller and buyer
Down Payment
Amount of money being paid for the automobile at time of purchase Usually required
Family Economics & Financial Education June 2006 Transportation Unit Shopping for an Automobile Loan (BAII Plus) Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Variables continued
Trade-In
Amount of money received for trading in an automobile Trade-in amount is subtracted from the negotiated price of the automobile Amount of the loan for the automobile after subtracting the down payment and/or trade-in price from the negotiated price Without interest and fees
Family Economics & Financial Education June 2006 Transportation Unit Shopping for an Automobile Loan (BAII Plus) Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Variables continued
Measure of the cost of credit on a yearly basis expressed as a percentage Amount of time the loan will be repaid
Time Period
Family Economics & Financial Education June 2006 Transportation Unit Shopping for an Automobile Loan (BAII Plus) Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Variables continued
Total of the principal loan amount, interest paid, and other fees Total of the down payment, trade-in value, and total loan amount
Family Economics & Financial Education June 2006 Transportation Unit Shopping for an Automobile Loan (BAII Plus) Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Rules of Thumb
The larger the down payment on an automobile, the lower the principal loan amount. The longer the time period of the loan, the smaller the payments. However, more interest is paid. The higher the APR, the more interest is paid and the larger the total loan amount.
Family Economics & Financial Education June 2006 Transportation Unit Shopping for an Automobile Loan (BAII Plus) Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Family Economics & Financial Education June 2006 Transportation Unit Shopping for an Automobile Loan (BAII Plus) Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Family Economics & Financial Education June 2006 Transportation Unit Shopping for an Automobile Loan (BAII Plus) Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
$5,000 over 3 years at 8% APR compounded monthly Step 1: Calculate monthly payment
Payments per year: [2nd] P/Y 12 [Enter] Standard-calculator mode: [2nd] Quit Principal loan amount: 5,000 [PV] Time period: 3 [2nd] xP/Y [N] APR: 8 [I/Y] [CPT] [PMT] Answer: $156.68
$156.68 * 36 = $5,640.55
(Monthly payment * Number of payments = Total loan amount)
Family Economics & Financial Education June 2006 Transportation Unit Shopping for an Automobile Loan (BAII Plus) Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Family Economics & Financial Education June 2006 Transportation Unit Shopping for an Automobile Loan (BAII Plus) Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Down Payment
How does the cost change with different down payment amounts?
Family Economics & Financial Education June 2006 Transportation Unit Shopping for an Automobile Loan (BAII Plus) Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Down Payments
Calculate the cost of a $7,500 car with an 8% APR compounded monthly over 3 years:
$1,000 down payment $2,500 down payment
What are the monthly payments? How much interest is paid? What is the total purchasing cost?
Family Economics & Financial Education June 2006 Transportation Unit Shopping for an Automobile Loan (BAII Plus) Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
$6,500 over 3 years at 8% APR compounded monthly Step 1: Calculate monthly payment
Payments per year: [2nd] P/Y 12 [Enter] Standard-calculator mode: [2nd] Quit Principal loan amount: 6,500 [PV] Time period: 3 [2nd] xP/Y [N] APR: 8 [I/Y] [CPT] [PMT] = $203.69 $203.69 * 36 = $7,332.71
(Monthly payment * Number of payments = Total loan amount)
$5,000 over 3 years at 8% APR compounded monthly Step 1: Calculate monthly payment
Payments per year: [2nd] P/Y 12 [Enter] Standard-calculator mode: [2nd] Quit Principal loan amount: 5,000 [PV] Time period: 3 [2nd] xP/Y [N] APR: 8 [I/Y] [CPT] [PMT] = $156.68 $156.68 * 36 = $5,640.55
(Monthly payment * Number of payments = Total loan amount)
Down Payments
Family Economics & Financial Education June 2006 Transportation Unit Shopping for an Automobile Loan (BAII Plus) Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
APRs
Calculate the cost of a $7,500 car with a $2,500 down payment over 3 years at:
8% APR compounded monthly 10% APR compounded monthly
What are the monthly payments? How much interest is paid? What is the total purchasing cost?
Family Economics & Financial Education June 2006 Transportation Unit Shopping for an Automobile Loan (BAII Plus) Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Example #3 APR 8%
$5,000 over 3 years at 8% APR compounded monthly Step 1: Calculate monthly payment
Payments per year: [2nd] P/Y 12 [Enter] Standard-calculator mode: [2nd] Quit
Principal loan amount: 5,000 [PV] Time period: 3 [2nd] xP/Y [N] APR: 8 [I/Y] [CPT] [PMT] = $156.68 $156.68 * 36 = $5,640.55
(Monthly payment * Number of payments = Total loan amount)
Family Economics & Financial Education June 2006 Transportation Unit Shopping for an Automobile Loan (BAII Plus) Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
$5,000 over 3 years at 10% APR compounded monthly Step 1: Calculate monthly payment
Payments per year: [2nd] P/Y 12 [Enter] Standard-calculator mode: [2nd] Quit Principal loan amount: 5,000 [PV] Time period: 3 [2nd] xP/Y [N] APR: 10 [I/Y] [CPT] [PMT] = $161.34 $161.34 * 36 = $5,808.09
(Monthly payment * Number of payments = Total loan amount)
Family Economics & Financial Education June 2006 Transportation Unit Shopping for an Automobile Loan (BAII Plus) Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
APRs
Example #3 8% APR
Monthly payments: $156.68 Interest paid: $640.55 Total purchasing cost: $8,140.55
Time Period
How does the cost change with different time periods?
Family Economics & Financial Education June 2006 Transportation Unit Shopping for an Automobile Loan (BAII Plus) Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Time Periods
Calculate the cost of a $7,500 car with a $2,500 down payment with an 8% APR compounded monthly over:
3 years 5 years
What are the monthly payments? How much interest is paid? What is the total purchasing cost?
Family Economics & Financial Education June 2006 Transportation Unit Shopping for an Automobile Loan (BAII Plus) Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Example #5 3 years
$5,000 over 3 years at 8% APR compounded monthly Step 1: Calculate monthly payment
Payments per year: [2nd] P/Y 12 [Enter] Standard-calculator mode: [2nd] Quit Principal loan amount: 5,000 [PV] Time period: 3 [2nd] xP/Y [N] APR: 8 [I/Y] [CPT] [PMT] = $156.68 $156.68 * 36 = $5,640.55
Example #6 5 years
$5,000 over 5 years at 8% APR compounded monthly Step 1: Calculate monthly payment
Payments per year: [2nd] P/Y 12 [Enter] Standard-calculator mode: [2nd] Quit Principal loan amount: 5,000 [PV] Time period: 5 [2nd] xP/Y [N] APR: 8 [I/Y] [CPT] [PMT] = $101.38 $101.38 * 60 = $6,082.92
(Monthly payment * Number of payments = Total loan amount)
Time Periods
Example #5 3 years
Monthly payment: $156.68 Interest paid: $640.55 Total purchasing cost = $8,140.55
Example #6 5 years
Monthly payment: $101.38 Interest paid: $1,082.92 Total purchasing cost: $8,582.92
Conclusion
Compare all offers and variables before signing an agreement! Changing a variable can either save the consumer money or he/she may end up paying much more than anticipated!
Family Economics & Financial Education June 2006 Transportation Unit Shopping for an Automobile Loan (BAII Plus) Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona