Ch. 8 Vehicle and Other Major Purchases

What to do

1. When shopping for major purchases obtain price information from three sources and negotiate both price and financing terms.

2. Fit credit repayments for big-ticket items into your budget before making any purchase decisions.

3. When planning to buy a vehicle check repair ratings history in an unbiased source such as the most recent April issue of Consumer Reports magazine.

4. Consider purchasing a used vehicle rather than a new one.

5. Seek redress when dissatisfied with purchases or services.

Planned Buying

Planned buying entails thinking about the details of a purchase from the initial desire to buy to satisfaction after the purchase.

Big-ticket Items

Products that have a high selling price that are sometimes called durable goods, which last a relatively long time and provide utility to the user.

Need vs. Want

Need: Item that we think is necessary.

Want: Items that is not necessary but desired.

Pre-shopping Research

Gathering information before actually beginning to interact with sellers.

Manufacturer’s Suggested Retail Price (MSRP)

The retail price set by the manufacturer and posted on the federally required side window sticker.

Dealer Invoice Price

The amount the automaker charges the dealership for new vehicles at the time the dealer buys them; it does not reflect some discounts that the dealer gets.

Comparison Shopping

Process of comparing products or services to find the best buy.

Best Buy

Product or service that, in the buyer’s opinion, represents the best combination of quality and price.

Upside Down or negative equity

A situation where the owner of a financed asset owes more than it is worth, thus creating a negative equality.

Balloon Automobile Loan

A loan with lower monthly payments in exchange for a larger one-time payment at the end.

When the final payment is due:

1. Hand over the cash sum stipulated in the agreement and keep the vehicle.

2. Return the vehicle to the lender to pay for the balloon payment (assuming its value satisfies the amount due).

3. Refinance with the lender or borrow from another source.

4. Sell the motor vehicle and pay the balloon payment with the proceeds (assuming the vehicle will sell for an amount that is high enough).

5. Trade the vehicle in on a replacement vehicle, and roll over the balloon amount due into another auto loan for the newer vehicle.

Subprime Loans

Are a type of loan approved for people with substandard credit scores or limited credit histories. FICO scores are usually lower than 620.

Rebate

The seller refunds a portion of the purchase price of the product either as a direct payment or a credit against the purchase (gift card).

Lease

Rental of a product while ownership title remains with the lease grantor.

Gross Capitalized Cost

Includes vehicle price plus the cost of any extra features such as insurance or maintenance agreements.

Capitalized Cost Reductions

Are monies paid on the lease at its inception, including any down payment, trade in value, or rebate.

Adjusted Capitalized Cost

Determined by subtracting the capitalized cost reductions from the gross capitalized cost.

Residual Value

Is the projected value of a leased asset at the end of the lease.

Money Factor

Measures the rent charge portion of your payment.

Open-end Lease

The consumer pays any difference between the projected residual value and its actual market value at the end of the lease period.

Depreciate

New vehicles and low-mileage used cards go down in value very quickly after purchase, often as much as 20 percent after leaving the dealers lot.

Closed-end Lease

Agreement in which the lease pays no charge if the end-of-lease market value of the vehicle is lower than the originally projected residual value.

Excess Mileage Charge

Fees assessed at the end of a lease if the vehicle was driven more miles than originally specified in the lease contract.

Acquisition Fee

Is either paid in cash or included in the gross capitalization cost.

Disposition Fee

Is assessed when we turn in the vehicle at the end of the lease and the lessor must prepare it for resale.

Early Termination Charge

May also be levied if we decide to end the lease prematurely.

Warranty

A type of guarantee that a manufacturer or similar party makes regarding the condition of its product.

Implied Warranty

The product sold is warranted to be suitable for sale and to work effectively whether or not a written warranty exists.

Implied Warranty for Fitness for a Particular Purpose

Here the seller (or provider or manufacturer) knows the buyer’s particular use and the buyer relies on the seller’s expertise or judgement in choosing the product.

As is

Way for the seller to get around legal requirements for warranties; the buyer takes all risk of nonperformance or other problems despite any salesperson’s verbal assurances.

Express Warranties

Written and oral warranties.

Full Warranty

A promise to the consumer that the manufacturer will repair the item for free during a set period.

1. A product must be fixed at no cost to the buyer within a reasonable time after the owner has complained.

2. The owner will not have to undertake an unreasonable task to return the product for repair (such as ship back a refrigerator).

3. A defective product will be replaced with a new one or the buyer’s money will be returned if the product cannot be fixed after a reasonable number of attempts.

Limited Warranty

Any warranty that offers less protection than the three conditions for full warranty.

Service Contract

An agreement between the contract seller and the buyer of a product to provide repair or replacement for covered components of the product for some specified time period.

Negotiating

Process of discussing actual terms of agreement with a seller, usually on higher-priced items.

Deal Holdback

A percentage of the total MSRP that the manufacturer holds and then gives back to the dealer, often at the end of the year or quarter.

New Vehicle Buying Service

Organization that arranges discount purchases for new-car buyers who are referred to nearby participating automobile dealers that have agreed to charge specific discount prices.

Professional Shoppers

In exchange for a fee of perhaps $150-450 will find the best available price from a nearby dealer and finalize the sale.

High Balling

Sales tactic in which a dealer offers a trade in allowance that is much higher than the vehicle is worth.

Decision-making Matrix

A system that allows one to visibly and mathematically weigh the decision we are about to make.

Low Balling

A sales tactic where the seller quotes an artificially low price to obtain a verbal agreement from a buyer and then attempts to raise the negotiated price when it comes time to finalize the written contract.

Buyers Remorse

Feelings of regret after making a purchase.

Buyers Order

Written offer that names a specific vehicle and all charges; only sign such offers after the salesperson and sales manager have signed first.

Cooling-off Rule

A Federal Trade Commission rule that gives consumers three days to cancel a contract of $25 or more after signing it for a sale made anywhere other than a seller’s normal place of business.

Mediation

Procedure in which a neutral third party works with the parties involved in the dispute to arrive at a mutually agreeable solution.

Arbitration

A neutral third party hears the claims made and the positions taken at the parties of the dispute and then issues a ruling that may or may not be binding on one or both parties.

Lemon Laws

State laws that provide guidelines for arbitrators to use to order a dealer’s buyback of a “lemon” as defined under the law-commonly a car that has been in the shop four or more times to fix the same problem.

Lemon

In these laws is a vehicle that was in the shop for repairs four times for the same problem in the first year after purchase,

Redress

Process of righting a wrong.