"Buying Goods and Services" Test Review

What costs go into buying/owning a car?

• Down payment

• Monthly payments

• Gasoline

• Maintenance

• Insurance

• Why is buying a car not always a good investment?

• It depreciates!

• This means that loses its value because of age and use

• Generally a car will lose 10-20% of its value each year

• All cars depreciate at different rates

Invoice Price

•  manufacturers initial price to dealer

Base Price

cost of car without options

MSRP

• manufacturer’s suggested retail price (what the dealer is going to try and sell the car for)

Dealer Sticker Price

• MSRP plus the suggested retail price of the dealer-installed options

Down Payment

the amount of money you have available to put down a car to reduce your loan

APR

• annual percentage rate (affects how much you pay each month in interest)

Advantages of Leasing

• Low monthly payment

• Low down payment

• Can drive a new car every 2-4 years

• Lower repair costs

Disadvantages of Leasing

• Do not own car at end of lease

• Mileage is limited to set amount

• Contract is confusing

• Steep fees for terminating lease early

The Ideal Candidate For Leasing

• Someone who likes to drive a new car every couple of years

• Someone who drives 15,000 miles or less each year

• Someone who keeps their cars in mint condition

• Someone who only has a small or no downpayment on a car

Early Termination

if you need to end the lease early, you will have to pay this fee (very expensive)

Excess Mileage Charge

• you are allowed a certain number of miles each year for the life of the lease – each mile that exceeds that number will result in X amount of dollars per mile

Excess Wear and Tear

• lessor will inspect car when you return it, and if it is determined that the car’s condition is worse than just normal wear and tear, you will lose your security deposit and maybe owe even more

Residual Value

• what the car is worth at the end of the lease (book value)

  • the shorter the lease, the higher the residual value, which means that your monthly payments will be less!

• How can you lower your insurance rates?

• Good grades

• Good driving record

• Special offers from insurance agent

Crucial for all drivers:

• All drivers in Illinois must have liability insurance… and they need proof

• Penalties: Minimum of $500 fine, and license is usually suspended

Illinois Requirements & Types

• What is the amount of liability insurance required for Illinois drivers

  • 25/50/20 

• $25,000 bodily injury liability for injuring/killing    1 person

• $50,000 bodily injury liability for injuring/killing more than one person

• $20,000 liability for damages of property to others

Collision Insurance

• covers damages to your car 

Comprehensive

•  protects your car from damages resulting from theft, vandalism, fire, flood, weather, etc... 

Uninsured Motorist

• covers you and your family for injuries and property damage for uninsured or hit and run drivers

Medical Payments

• overs you and your family for medical costs of injuries sustained in an accident with your car

Factors considered when determining cost of auto insurance:

• Gender – females pay less than males (however this is changing due to texting and driving)

• Age – unmarried, male drivers under 30 pay most (females are considered adults at 25; males at 30)

• Marital status – married drivers pay less

• Driving Record

Factors considered when determining cost of auto insurance:

• Place of residence – city drivers usually pay more than suburban drivers

• Type of car

• Use of vehicle – the more miles driven, the higher the premium

• Credit record – some statistics show that people who cannot handle credit well, put in more insurance claims also, so they are charged more

• Amount of coverage desired and deductible chosen

• Each year that passes… you pay a lower rate. It drops significantly every two years (again, based on driving record)

Application Process

• Things to think about:

  • Amount & types of coverage & likely premium

  • Deductible: amount you agree to pay per claim

    • The higher the deductible the lower the premium but you have to pay more out of pocket for each claim

  • You may not want as much coverage. Why?

    • Older car, don’t drive a lot

  • If this is the case, you would need to tell your insurance agent this

• Where can you find insurance companies?

• Internet

• Word of mouth

• TV advertisements

Renting Pros

• Flexibility

• No maintenance

• Affordable

Renting Cons

• Neighbors

• No equity

• Limit on decorating

Buying Pros

• Builds equity

• Tax benefits 

  • Deduct both mortgage interest & property     taxes

• Ownership

• Buying Cons

• Expensive

  • Down Payment (10-20%)

  • Closing Costs ($1,000-$4,000)

  • Property Taxes (2-2.75% of home value)

• Maintenance

Mortgage

• A debt instrument, secured by the collateral of specified real estate property, that the borrower is obliged to pay back with a predetermined set of payments. (a.k.a. your monthly home payment)

Two Main Types of mortgages

• Fixed Rate Mortgage

• Adjustable Rate Mortgage (ARM)

Fixed rate mortgages

• Typically 15 or 30 years in length

  • Longer terms = more interest paid, but lower monthly payments

PROS

• Same payment every month until it’s been paid off

  • Stability helps w/ budgeting

  • State of economy doesn’t affect payments

CONS

• If interest rates fall, may need to refinance

• Little customization

Adjustable Rate Mortgages (ARM)

PROS

• Typically lower interest in the first few years

  • Borrowers can purchase more $$ homes

• If interest rates fall, it automatically changes the price you pay

• Allows borrower to invest saved money

CONS

• Payments may rise drastically 

  • More difficult to stick to a budget

• Trickier to understand

• Possible start-up expenses when renting an apartment

• Security Deposit

• 1^st month’s rent

• Utilities set-up

• Furniture

Evaluating Lease Terms

• Parking Included?

• Laundry on premises

• Rent/due date

• Length of lease

• Security deposit

• Utilities

• Ending lease/subletting

• Repairs & maintenance

• Landlord’s right to enter

• Restrictions (pets, parties)

• Landlord (Lessor)

• the person who owns the property that you rent

• Tenant (Lessee)

• the person renting the apartment

• Lease 

• a document that commits the tenant to pay rent for a period of time, it describes the terms under which the property is rented

Sublet

• allows the tenant to find another person to live in the apartment assuming the obligations of the lease

• Security Deposit 

• initial start-up expense that is paid to the landlord for any possible damage done to the apartment.

Conducting an Inspection

• Safety/Security

• Fire Exit

• Neighbors – age & attitude

• Parking

• Cleanliness

• Decor

• Plumbing

• Appliances

• Door Locks-changed?

• Windows 

• Drapes

• Storage

• Furnishings

• Privacy?

Renter’s Insurance

• For anyone renting or subletting a home or apartment

• Property owners or landlords are required to hold homeowners coverage

• protects the structure of the house/apartment and the land 

• personal property inside the home only covered if the tenant has a rental insurance policy

• Usually about $10-15 per month

• Insures valuables, personal property, and against lawsuits

• Liability coverage

• If a person is injured in your home not due to a problem with the structure…you can be sued!

• Renter’s insurance protects you from litigation that results from someone visiting you at home