Personal Finance- Chapter 8- Vehicle and Other Major Purchases

Need Item thought to be necessary
Want Item not necessary but desired
Impulse buying Buying too quickly without fully considering priorities and alternatives
Preshopping 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 (base invoice price) The amount of 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 acceptable quality at a fair or low price for that quality level
Upside down A situation where the owner of a financed asset owes more than it is worth, thus creating negative equity
Lease Rental of a product while ownership title remains with the lease grantor
Gross capitalized cost (gross cap cost) Includes vehicle price plus the cost of any extra features such as insurance or maintenance agreements
Adjusted capitalized cost (adjusted cap cost) Subtracting the capitalized cost reductions from the gross capitalized cost
Residual value Projected value of a leased asset at the end of the lease time period
Closed-end lease/walkaway 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
Balloon automobile loan A loan that has a low monthly payment similar in amount to that required if the vehicle had been leased and with a large final payment similar in amount to the residual value under a lease
Warranty Sellers’ assurances that goods are as promised and that certain steps will be taken to rectify problems if they arise
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
Full warranty Warranty that meets three stringent promises: the product must be fixed at no cost to the buyer within a reasonable time, the owner will not have to undertake an unreasonable task to return the product for repair, and a defective product will be replaced with a new one or the buyer’s money will be returned if the product cannot be fixed
Limited warranty Any warranty that offers less protection than the three conditions for full warranty
Extended warranty/service contract/buyer protection plan Agreement between the seller and buyer of a product to repair or replace covered product components for some specified time period; purchased separately from the product itself.
Negotiating/huggling Process of discussing actual terms of agreement with a seller, usually on higher-priced items
Dealer holdback/dealer rebate A percentage of the total MSRP that the manufacturer holds and then gives back to the dealer, often at the end of 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
High-balling Sales tactic in which a dealer offers a trade-in allowance that is much higher than the vehicle is worth
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 finalized the written contract
Buyer’s order Written offer that names a specific vehicle and all charges; only sign such offers after the salesperson and sales manager have signed first
Buyer’s remorse A myth pertaining to the buyer’s supposed legal right to change his or her mind and return a vehicle after signing a purchase contract
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
Redress Process of righting a wrong
Alternative dispute resolution programs Industry- or government-sponsored programs that provide an avenue to resolve disputes outside the formal court system
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
A service contract offers free or low-cost repairs to the product for a specified period of time
From simply a financial perspective the best way to buy vehicles is to buy buy one or two year-old used cars and drive them for five or more years
A service contract is very much like insurance
A technique used by an auto dealer whereby an offer for a traded-in vehicle is much higher than its true value in order to get a buyer to accept a too high price for the vehicle being purchased is called high-balling
A vehicle lease is essentially a rental of a vehicle
Dividing the price of a product by the number of times it will likely be used provides its__ and provides a way to compare among competing purchase options cost-per-use
Buying without fully considering priorities and alternatives is called impulse buying
A form of dispute resolution that is not legally binding on either party is mediation
Brian has decided he would like to negotiate on a car with a $32,000 sticker price. If the dealer’s cost on this car is 15 percent lower than the sticker price, Brain should be able to negotiate a price some what higher than $27, 200
Comparison shopping for a new vehicle includes obtaining a loan preapproved
A consumer can save money by all of these (avoiding buying on impulse, stocking up on advertised specials, and paying cash for purchases)
Government agencies and media action lines are examples of which channel of complaint? consumer-action agencies
A technique used by an auto salesperson whereby an artificially low price is agreed upon verbally but the salesperson claims a higher price is needed when it comes time to finalize the sale on paper by claiming that he/she could not get approval for the original price is called low-balling
A__ __ report lists prior ownership, odometer readings, accident reports, flood damage, total-loss information, and any title fraud on a used vehicle vehicle history
An automobile buyer can call the National Highway Traffic Safety Administration website to get information on government safety test results, recalls, and theft ratings
Auto leasing is becoming an attractive option and about__ percent of new cars “sold” each year are actually leased. 30
Implied warranties required by state law include a warranty of both mechantability and fitness
Compare the cost of the following leasing agreement with the finance charge on a loan for the same time period. The price of the car is $14,000, and its projected residual value at the end of four years is $3,000.​Monthly payment$250Capital cost reduction$1,000Disposition charge$200​Other things being equal, one would want to finance this car rather than take this lease if the finance cost were less than​ $2,200
A(n)__ is a refund of part of the purchase price rebate
Consumer Reports comprehensive review of makes and models of vehicles occurs annually in its__ edition April
Companies that offer written express warranties must do so under the provisions of which federal act? Magnuson-Moss Warranty Act
“Gap” insurance pays off the loan balance as well as being very profitable for the dealer
Consumer Reports annual buying guide is published in December
A form of alternative dispute resolution that is legally binding at least one party is arbitration
Compare the cost of the following leasing agreement with the finance charge on a loan for the same time period: The value of the car is $15,000 at the beginning of the lease period, and its projected residual value at the end of three years is $4,000. The lease requires a $500 down payment.​Monthly payment$315Acquisition fee$300Disposition charge$150​Other things being equal, one would want to finance this car rather than take this lease if the finance cost were ____ or less. $1,290

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