What are the pros and cons of owning a vehicle?Pros Cons

L8-Obtaining a VehicleUnit 8 - Finance

What are the advantages and disadvantages of owning a vehicle?Advantages Disadvantages

Feeling of independence

Freedom

Price of gasInsuranceMaintenance

Things to consider when buying a car:

Buying a New vehicleAdvantages Disadvantages

Buying a used vehicleAdvantages Disadvantages

Leasing instead of buyingAdvantages Disadvantages

Example 1: Finance a vehicleYou are purchasing a used car and need to

borrow $5000 from the bank for four years at 9.5% interest, compounded monthly.

a) Calculate the total amount paid to the bank for the loan.

b) Calculate the total amount of interest paid over the life of the loan.

a) Calculate the total amount paid to the bank for the loan.A=P(1+i)n

A=? P=$5,000, i=0.095/12, n=4x12=48

A=$5,000(1+0.095/12)48A=$7,300.49

b) Calculate the total amount of interest paid over the life of the loan.I=A-PA=$7,300.49, P=$5,000I=$7,300.49-5,000I=2,300.49

The total interest is $2,300.49

Example 2: Lease a new VehicleTo lease a new car selling for $30 000, a

customer agrees to pay a $2000 down payment and to make 48 monthly payments of $445.

a) Calculate the total cost of leasing the vehicle

b) Calculate the average cost per month over the life of the lease.

a) Calculate the total cost of leasing the vehicleTotal cost = down payment + monthly

payments= 2000 + (48 x 445)= 2000 + 21 360= 23 360

Therefore, the total cost of leasing the car for four years will be $23,360.

b) Calculate the average cost per month over the life of the lease.$23,360 ÷ 48months = $486.67/month

The average cost per month is $486.67

Classwork / HomeworkP486 #3-5, 7, 9

Things to consider when buying a car:How much can you afford? Payment options

(cash, finance, lease)What type of vehicle (sporty, sedan, SUV)?

Automatic/Manual?Passengers? Cargo?How far driving? City or highway? (fuel

efficiency, reliability)New or used?Insurance (age of owner, type of vehicle, sex,

marital status, purpose, distance, driving record, previous claims)

Buying a New vehicleAdvantages Disadvantages

No wear and tearNo previous driversWarrantDesired options

ExpensiveWarrant may not cover

all problemsDepreciation greatest in

first few yearsManufacturing defects

Buying a used carAdvantages DisadvantagesLower costLess depreciationUsed-car warranty

Hidden mechanical problems

May be poorly maintained

No warranty if buying from a private seller after new-car warranty expires

Leasing instead of buyingAdvantages DisadvantagesDriving a new vehicleLow down paymentLower monthly

paymentsCan drive a car that you

might not be able to afford to buy

Cost of additional mileage over limit

Higher overall cost in long run

Will not own car at end of lease

Confusing contracts