Car Buying process

1. Review Exhibit 6-2 on page 196 of the textbook. In at least 100 words, summarize the steps in the car-buying process.

2. Using the framework on page 199, prepare a financial comparison of buying and leasing a car with a cash price of $24,000 (ignoring the down payment opportunity cost). Show your calculations.

Instruction: Complete the chart below to calculate the cost of buying a car.
• Down payment (to buy/finance): $4,000
• Monthly loan payment: $560
• 48 month loan and lease
• Value of vehicle at end of loan: $7,200
Steps to Buying a Car taken from “Figure it Out” on page 199 Enter your calculation and response in this column
Step 1. Total down payment
Step 2. Total cost of payments: Multiply the Monthly Loan Payment by the Length of the Loan
Step 3: Identify the opportunity cost of the security deposit: Multiply the Security deposit by the Length of the Loan by 3%
Step 4. Add the result of Step 1, 2 and 3.
Step 5: To determine the total cost of buying subtract the Value of the vehicle at the end of the loan from the result of Step 4.

Instruction: Complete the chart below to calculate the cost of leasing a car.
• Security deposit (to lease): $1,200
• Monthly lease payment: $440
• 48 month loan and lease
• End-of-lease charges: $600
Steps to Leasing a Car taken from “Figure it Out” on page 199 Enter your calculation and response in this column
Step 1. Multiply the Monthly Lease Payment by the Length of the Lease
Step 2: Identify the opportunity cost of the security deposit: Multiply the Security deposit by the Length of the Lease by 3%
Step 3. To determine the total cost of leasing add the results of Step 1 and 2 to the End-of-Lease Charges

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