1. Apply What Youve Learned - Auto Purchase

Scenario: You are in the market for a new car. You do not have a trade-in, but you have saved $2,500 toward a down payment. You currently earn $3,000.00 gross monthly income, of which 30% is withheld for various deductions. You have heard of the 20% rule of thumb, but want to limit your payments to no more than 17% of your net monthly income because of other debt commitments. You currently have a credit score of 700. You expect to drive the car an average 15,000 miles per year.

Youre considering purchasing a usedrather than newcar. This strategy offers several advantages. Which of the following is not an advantage of purchasing a used car?

The reduced down payment required for the purchase

Avoidance of the vehicles significant decrease in value due to depreciation

A lack of knowledge and confidence in the mechanical condition of the car

The reduced price of the automobile

Which of the following will directly affect the final cost of a new car if you elect to purchase the vehicle? Check all that apply.

The final negotiated price of the vehicle

The number of accidents and traffic citations on your driving record for the past three years

The amount of any rebate or incentives associated with the purchase of the new vehicle

The amount of the down payment

The interest rate of any loan used to finance the purchase

Alternatively, after seeing several television commercials suggesting the benefits of leasing a new automobile, youve started thinking about the phenomenon of leasing. Which of the following statements regarding leasing is true? Check all that apply.

Leasing can result in lower monthly payments than would be incurred if you purchased the vehicle.

If you use an open-end lease, youll be required to pay the difference between the vehicles projected residual value and its actual market value.

Customary end-of-term charges on a lease can include a disposition fee, an early termination charge, and an excess mileage charge.

If you select to use a closed-end lease, then youll be free from any final payment. Thats why they call it a walkaway lease.

If you elect to purchase the vehicle at the end of the lease period, youll pay the vehicles residual cash value in the event of an closed-end lease.

A lease payment is based on four variables. Which of the following is not one of these variables?

The cost of the vehicle

The money, or lease, factor

The vehicles residual value

The closed-end premium

Why would the credit score used on a vehicle loan differ from that used to purchase a home or furniture?

Because lenders making vehicle loans want to rely on a credit score that places greater emphasis on a borrowers past experiences repaying vehicle loans.

Because it allows credit bureaus to sell another type of credit score to their business customers.

Complete the following table to determine your desired maximum monthly payment. (Round your answers to the two decimal places.)

Gross income (monthly)	$
Deductions (dollar amount)	$
Take-home pay	$
Percentage allotted for car payment	%
Maximum monthly payment	$

You have decided to purchase a new car and have negotiated the price. A four-year loan is resulting in payments of $457.00 per month. How might you get your monthly payment down to your desired monthly goal? Check all that apply.

Shop for a loan with a lower interest rate

Shorten the term of the loan from four to three years

Decrease the amount of your down payment

Extend the term of the loan from four to five years

A good credit score is an important factor when buying a car because it allows you to (1) obtain financing terms, and (2) afford a expensive or better vehicle for the same loan amount.