How to Buy a Car

Instructions
In this activity, you will follow Principles of Effective Car Ownership, from Financing a Car to Comparing New vs.
Used, and the Purchasing Process will help you make better decisions when purchasing a car. Some of you have
never bought a car before. Others have personal experiences of buying cars. (If you don’t plan on ever financing a
vehicle, or if you feel that this assignment doesn’t apply to your situation, please contact your instructor for an
alternative assignment.)

Instructions: Respond to each of the following. Type your answers directly into the worksheet. Save your work and
submit it in I‐Learn.

Understand the total cost of ownership

1. What do you consider to be an excellent credit score and why?

700 because you are able to get a good interest rate without having to have a long credit history.

2. Develop an excellent credit score. What are you currently doing to build your credit score?
In order to develop a good credit score I am making small purchases on my credit card and paying them off
before the grace period ends.

3. Find two (2) used cars you might want, on websites such as www.cars.com or www.autotrader.com or other car
website. Provide a link to those cars and explain why you chose those two (2) particular cars.
Car #1: 2016 Chevrolet Malibu LT Car #2: 2014 Subaru Crosstrek Limited

https://cars.ksl.com/listing/6801289 https://cars.ksl.com/listing/6800663

Great gas milage, AWD, newer car, good price Good for snow, good gas milage, through a dealer,

4. If you were really buying a car, whether new or used, you would ask sellers several questions to determine the
condition of each car. What 2 questions would you ask the sellers of these two (2) particular cars?
What kind of repairs were done on the car?

How often was the car serviced?

5. The next step would be to run a CARFAX report if you were actually buying a car, however because CARFAX
reports are not free, for this assignment, please list 5 of the 7 things you can find on them as listed in the
textbook.
Previous owners, accident history, where the car was purchased, repair history, and maintenance history

6. Determine five-year costs to own of both cars at www.edmunds.com using the “True Cost to Own” (TCO)
Calculator (this includes depreciation, taxes, licensing and fees, insurance premiums, financing charges, fuel
costs, scheduled maintenance, and repairs). What is the TCO for both cars?
 Car 1: 2016 Chevrolet Malibu LT Car 2: 2014 Subaru Crosstrek Limited

$31,117 $31,538

7. Determine fair prices at www.kbb.com. Knowing both the high book value and the low book value gives you
some flexibility when negotiating the price. What are the high book prices and the low blue book prices for each
car?
Car 1: 2016 Chevrolet Malibu LT Car 2: 2014 Subaru Crosstrek
Limited

High Book Price $13,915 $16,525

Low Book Price $11,742 18,760

8. Using the information from your research above, decide which one of the two (2) cars you would choose and
tell why.
I would choose the second car. It has a greater discount and it is also sold through a dealer and not from a
private seller.

9. What do you think is a fair price for the car you chose?
I think the price they are selling it at is fair. It has a rebuilt title so you’re not 100% sure how long the car will last.

10. What is a reasonable offer that is slightly below that fair price that you would offer?
I would offer $9000.

11. Compare interest rates from multiple institutions

Institutions Interest Rate

Bank of America 2.89% for 60 months

Deseret First Credit Union 2.89% for 60 months

Dealership Nissan 1.9% for 36 - 60 months 63 months and longer 3.9-

5.53%

Bankrate.com (Interest repository site) 4.22% for 60 months

 What is the best interest rate you found?
1.9%
Which institution offers the best rate?
The dealership at Nissan
What is the term of the loan?
The length of the loan is 5 years or 60 months
What fees are there?
There are no additional fees

With the best interest rate you found, search online for an auto loan calculator. Fill in the requested information.
How much would your monthly car payment be if you were to finance your vehicle?
$110/month
Does it fit into your budget?
yes
Why or Why not?
I have a surplus each month that I always just put straight into savings. I could set it aside for a car
payment instead.

If not, what price of vehicle would fit?

--

Compare this cost of buying vs. leasing. Use this website: https://www.consumerreports.org/buying-a-car/leasing-
vs-buying-a-new-car/ to decide if leasing or buying is better for you. Report your results here:
I think that buying a car is better for me. I do drive pretty far every year traveling for school and work. I also
would like to not worry about damaging it and having to pay more than just the repairs.

12. Write a paragraph on the negotiation process using information from the textbook and class discussion.
The first thing you would want to do is check your budget and see how much you can afford to pay on a car.
It is also a good idea to make sure you know what kind of car will meet your needs. The second step is to
comparison shop. Look at different models of cars and see what prices you would pay and what you can
afford. After finding some in your budget you should go and test drive them and see if you like them. If you
don’t love the car don’t buy it. Once you have found your car you can start to negotiate. Think of the other
cars you tested and think of a fair price. Most people are willing to go down a little in price. If you are
feeling too much pressure ask if you can think about it and get back to them. Never make a big decision
under pressure. Once you agree on a price buy the car and take care of it.
13. A thorough inspection of the car by a mechanic is needed. Who would you take it to and what specific things
would you have them look for?
There is a really good car mechanic place close to my house. They know a lot about cars and are really
honest. I would take it there to get it inspected. If I was in Rexburg there is a really good place there as well
called the Car Shop. They seem really knowledgeable and honest as well. I would take it to them and ask
them if they would check to see if there are any problems with the car. I would ask them if it appears to have
been in any accidents and if the repairs were completed properly.

14. Look up the latest model of the car you chose to buy. What is the cost of a NEW car compared to the one you
chose? By what percent has the car depreciated and in how many years? Cost of New Car?
$22,245. The new car is a little more than twice the price.
How old is car?
6 years
Depreciation Percent? (see page 111 of the textbook)
69%

Name 3 things you learned from completing this exercise:

1. I learned that it is best to save up and pay in cash in order to avoid paying interest.

2. I learned that it can be hard to find a used cars that is a good price for what you are getting.

3. I also learned that it can be fun looking for a new/used car. I always thought of it as overwhelming not
knowing how much you would actually pay for a car.

Wisely handling the automobile purchase decision will contribute significantly to your wise financial stewardship. It
will help you live joyfully within your means. We hope that this important financial decision of buying a car now
seems less intimidating and more exciting!