Budgeting for College: Buying Your First Car

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Budgeting for College:
Buying Your First Car
Andrea Morgan, Gary Moore, and Melissa Greenslade
Program Coordinators
University of Arkansas
Office of Financial Aid
Things to Consider…
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Finding the Right Car for You
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Closing the Deal
Paying for It
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Loans/Credit
Other Costs
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Lifestyle/Budget
Leased/New/Used
Title/registration; insurance, maintenance, etc.
Anything else?!?
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Rules!
Finding the Right Car for You
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Lifestyle considerations:
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Manual or automatic?
Do you need four wheel drive?
What safety features do you want?
Will you be doing any towing?
Will the car fit in your garage or parking space?
How long do you want to keep the car?
How many people do you need to transport?
How much time do you spend in your car?
What type/how much driving do you do most often?
Finding the Right Car for You
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How much car can you afford?
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Know your budget
A good rule of thumb is that your monthly car payment should
not exceed 20% of your monthly take home pay
Remember interest costs on car loans
Remember to consider gas costs
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Consider the car’s gas mileage and what type of gas it requires
Also budget for insurance, registration, scheduled maintenance,
and car repairs
Finding the Right Car for You
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Research, Research, Research
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Know what kind of car you want to buy and what features you
want it to have
Go to the dealership BEFORE you are ready to purchase to
check out the cars in person
Take a test drive
Resources:
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Edmunds.com
KBB.com (Kelly Blue Book)
Consumerreports.org
Carbuyingtips.com
Buy or Lease?
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Lease: like renting a car, but for a longer time period
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You should consider a lease if you meet all four of the
following criteria:
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At the end of the lease contract, you either have to turn the car in
or buy at the price listed in the lease
Leases are generally only for new vehicles
Able to write off your lease payment as a business expense on your
tax return
Drive fewer than 15,000 miles per year
Prefer to trade in your car every three or four years
Want to avoid the hassle of selling your used car
Leasing is not a good option if you are thinking about buying
the car in the long run
Advantages of Leasing
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You could get a new car every few years before the car
needs significant maintenance and without having to sell a
used car
Potential for smaller down payment
Lower monthly payment
Disadvantages of Leasing
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You pay more if you go over the mileage allotment in the
lease agreement
You don’t own the car at the end of the lease
There is a big financial decision at the end of the lease –
you must either turn the car in or buy it
If you intend to buy, leasing generally costs more than
purchasing from the start
New or Used?
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May boil down to what you can afford
You could save up to 30-40% on a 3-year-old model
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You may owe more than it is worth if you decide to sell a new
car you’ve had for only two to four years.
Many manufacturers now offer certified used cars
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These cars have passed a detailed inspection and the
manufacturer usually adds a warranty (can be 12 months or
more)
Buying a Used Car
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Can be bought from a dealer, private party, or online
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Research used car prices/values
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Edmunds.com
KBB.com (Kelly Blue Book)
Check out the vehicle history
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Autotrader.com; cars.com; Craigslist; and eBay motors
Carfax.com or autocheck.com
Ask for vehicle service records
Thoroughly inspect the car
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Have it inspected by a mechanic if possible
Warnings about Used Cars
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Salvaged Vehicles – vehicles that were involved in an
accident or that incurred considerable damage
Lemons – vehicles that have been repaired 4+ times for
some defect within a warranty period but is not fixed
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Check on your state’s Lemon Laws for new cars to find out
what to do if your new car is a lemon
Flipping – buying a vehicle and quickly selling it. There
may be a reason the seller is trying to get rid of it quickly
Buying a New Car
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Research
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Find out the Invoice Price
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Check if there are any rebates or specials deals
Manufacturer’s Suggested Retail Price (MSRP) or “Sticker
Price” – the price posted on every new vehicle.
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KBB.com; Edmunds.com
This is the dealer’s cost for the vehicle; it does not include any
advertising, selling, displaying, or financing costs
Required by law
Usually the highest market price
Good starting point for getting a fair price is to aim for a
target price of 2% over the dealer invoice price
Buying a New Car
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If you find a car you are interested in purchasing, you have
a couple of options:
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Bargain remotely (by phone/internet)
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Call the Internet Sales Manager or Fleet Manager and tell them you
know the invoice price and are looking for the best deal
Once you get a price quote, you can contact another dealership to
see if they can beat that price
You can go back and forth on this until you reach a price you decide is
fair
Have a copy of the contract faxed to you to review before you agree
to it. Look for any hidden add-ons or price increases
Buying a New Car
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Go directly to the dealership
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Know the invoice price and any
other special offers available
Stick to discussing the invoice price
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Don’t let the salesperson change the
subject to the MSRP or monthly
payment amount
Negotiate one area at a time – i.e.
vehicle price, trade-in value
Know what you can afford and stick
to it
Walk away if you feel
uncomfortable or too pressured
Closing the Deal
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Even if you already have financing approved, get the
dealership’s best financing offer: it may be better than
what you have in hand
Extended warranties
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Other add-ons – pay attention to prices and whether
these things are needed
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In most cases, you will probably want to pass on this
If you do buy one, make sure you understand what it covers
Rustproofing
Security etching
Remember you can still walk away at this point!
Bargain Hunter Tips
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Buy out of season vehicles
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Convertible in winter
Buy a model late in the year before a body style change
Look for an overstocked or mass market vehicle with cash
incentives
Buy around the last day of the month (dealers have quotas)
Buy at the end of the year (some dealers will clear out
inventory for tax reasons)
Escape the auto debt trap by keeping your car for at least 3
years after you’ve paid it off, then continue to pay your car
payment into a savings account. You can use this money plus
your trade-in to cut down on the costs of your next car
Paying for Your First Car
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Consider how much you have or can save for a down payment
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Shop around for financing
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Recommended to have 10-20% down
Check with local banks and credit unions – they are more likely to
give you a better deal on a loan than through the car dealership
Have financing before you go to purchase a car
What to look for in an auto loan:
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What is the interest rate?
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Your approval and/or interest rate is determined by your credit score
How long would the loan be for?
Remember you cannot sell the car without the lender
releasing the title of the car to you and signing off that it no
longer has an interest in the car (loan must be paid off)
Paying for Your First Car
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What lenders look for in a borrower
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Credit Application
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Your Credit Report/Score
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Amount of Monthly Income/Expenses
Length of Time at Current Address
Length of Time at Current Employer
Car Information/Value
Down payment amount and amount financed
How likely you are to repay the loan based on your credit/payment
history and current financial responsibilities
Co-signer required?
Remember that the car you buy becomes collateral for the loan. The
lender will have title to the car until it is paid off. If you do not pay,
the lender has the right to repossess (take the car away from you).
Title and Registration
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Laws and regulations vary by state
In Arkansas, you must register your car and pay sales tax, registration,
and title fees within 30 days of the date of transfer or date from which
a prior lien has been released
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Manufacturer’s Certificate of Origin if new, or previous owner’s title if used
Invoice or bill of sale reflecting full purchase price
Odometer Statement
Signed copy of lien contract, if financed
Proof of assessment from county assessor
Proof of personal property taxes paid
Proof of liability insurance coverage on vehicle
Payment for sales tax, registration, and title fees
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State sales tax is 6%, there may also be local taxes
Title fee of $10.00
Lien filing fee of $.50
Registration of $19.75-32.75 depending on vehicle weight
Automobile Insurance
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Coverage you MUST have:
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Bodily Injury Liability – if you cause an accident, this part of
your insurance coverage pays for the medical, rehabilitation,
and/or funeral costs of your passengers, the other driver and
passengers, and any pedestrians involved
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Property Damage – this pays to repair or replace someone
else’s vehicle or property damaged by your car
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Experts recommend coverage of at least $100,000 per person and
$300,000 per accident
Recommend coverage of $100,000
Uninsured and underinsured motorist coverage – this covers
medical, rehabilitation, and funeral costs for you and your
passengers if the accident is caused by someone who has little
or no insurance
Automobile Insurance
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Coverage You Probably Need:
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Collision – pays to repair or replace your car no matter who caused
the accident
Comprehensive – pays to repair or replace your car if its stolen or
damaged as a result of a natural event
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Coverage for these items kicks in for amounts above your deductible
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Choose the highest deductible you can afford to pay out of pocket to help
lower your insurance costs
Personal Injury Protection – reimburses you for lost wages
and home care needed as a result of an accident
Medical Payments – pays you and your passengers for medical
and funeral costs regardless of fault. It will cover injuries you
incur while operating someone else’s car and injuries you and
your family incur as pedestrians
Automobile Insurance
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Other coverage available
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Roadside assistance – pays to have your vehicle towed
Rental reimbursement – pays for a rental car for up to 30 days
if your vehicle is stolen or wrecked
Be sure to shop around for the best rates
Remember this monthly cost when determining your
available budget for purchasing a car
Automobile Insurance Costs
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Based on risk factors (rate the likelihood that you will get
in an accident or file a claim)
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Age; gender; zip code; model, year, average repair cost, crash
safety rating of primary car…
Ask about discounts (taking a driver safety course,
combination auto/home policy, full-time student,
maintaining good grades…)
No tickets or accidents for 3 years=good-driver discount
Note: It is generally less expensive to be included on
your parents’ family policy unless you start having
problems with accidents or tickets.
Real-World Example:
2012 Honda Civic Coupe
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MSRP: $16,405
Invoice price: $15,122
2% of invoice: $302
Total paid for car: $15,424
$1542 down (10%)
Loan: 60 months at 5.24%
compound interest ($1928
total interest cost)
Monthly payment: $263.50
6% sales tax: $925
Title, lien fee, & registration:
$30.25
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Insurance costs (based on
median rates in 2011):
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Drivers 20-24: $77/mo
Drivers 25-29: $58/mo
Upfront cost: $2,476.25
(down payment, sales tax, title,
lien fee, & registration)
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Monthly cost: $341
(car payment & insurance—
excludes gas and maintenance)
Calculators available at www.edmunds.com, www.kbb.com, etc.
Car Maintenance
Keeping your car regularly maintained can help prevent bigger problems and
bigger costs down the road
 Three things YOU can do:
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Have your oil changed regularly
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Check the engine oil - monthly
Check the tire air pressure – monthly and before any extended road trips
Regularly wash your car
Every 3000-7500 miles or every 3-6 months (check your manual for your cars
recommendations)
At the same time, check your air filter, exhaust system, brakes, and fluids, clean
the radiator, and check the battery
Every 2-4 years
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Drain and flush the cooling system
Change the automatic transmission fluid
Replace the drive belts and hoses
Change the timing belt
Car Maintenance Costs
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Budget a little every month for car maintenance
And budget for car repairs
Automotive Budget Busters:
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Tires
Heating/Air Conditioning
Transmission
Clutch
Brakes
Starter
Battery
Head Gasket
Cracked Windshield
Car Rules…Inside and Out
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Know, understand, and plan to follow the rules of the road
Ignore the rules and get caught:
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Pay a fine to the court
Pay for traffic school, if eligible
Pay more for car insurance
Driving privileges may be suspended
Driving privileges may be revoked
Car insurance may be cancelled and available only through a
high-risk, high-cost insurance carrier
Adopt a set of rules for your car and make sure people
know BEFORE you NEED to enforce them!
Before you go…
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Please complete and submit your evaluation forms
PowerPoint presentation will be posted on our website,
with past presentations
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Budgeting/Money Wisdom
Scholarships
Credit Cards & Credit Reports
Identity Theft
Banking & Money Management
Thank You!
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Contact Information:
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Office of Financial Aid; Andrea, Gary, and Melissa
Campus location: 114 Silas Hunt Hall
Phone: 479-575-3806
Fax: 479-575-7790
Website: http://finaid.uark.edu/
And find us on Facebook at University of Arkansas Financial Aid!

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