Vehicle Finance Part #1mssamsclass.files.wordpress.com/2020/04/4.-vehicle-finance... · 04/04/2020...
Transcript of Vehicle Finance Part #1mssamsclass.files.wordpress.com/2020/04/4.-vehicle-finance... · 04/04/2020...
Vehicle Finance Part #1Purchasing a New Vehicle
Warm UpEvaluate each percentage:
7% of $120 =
12% of $5,858 =
105% of $25.99 =
30% of $473.15 =
Evaluate each expression:
12 + 8 x 3 - 10 =
400 - (26 + 1.05 x 20 - 11) =
(15)(8) - 22 + 45 =
(1.12)(54 + 88 - 37) - 10 =
Choosing a Vehicle
Buying a vehicle is a major purchase:
There is an initial cost, the registration, the insurance, the fuel, and the maintenance costs.
These are just a few things to consider when deciding what type of vehicle you can afford to buy and how much money you are able to spend.
Choosing a Vehicle
Since a lot of money is spent on a vehicle, it is important to make an informed choice
Choosing the right vehicle demands considerable research
What are some factors that need to be considered when choosing a vehicle?
Before you ShopDetermine why you want to buy a vehicle
convenience - you can go anywhere you want whenever you want
commuting to work or school
feeling of independence - you do not need to ask other people for a ride
trying to avoid expensive repair costs on your present vehicle
replacing your present vehicle because it is getting old
Before you ShopTips to save money when buying a vehicle
choose a smaller vehicle
negotiate for options ex) air conditioning vs lower price
avoid buying brand new instead, wait a couple months
wait for end of year clear out prices
rebates and incentives from either manufacturers or the government
AffordabilityIf you borrow money to purchase a car, financial planners generally advise that your total monthly debt should be no more than 40% of your net income
Maximum Monthly Debt Repayment = 40% x Net Income
Net Income = Debt or Loan ÷ 40%
ExampleIf your monthly net income is $1,200, what is the maximum monthly debt repayment you can afford?
ExampleWhat is the minimum monthly net income that is needed if you wish to take a loan with monthly repayments of $600?
Total Debt Service Ratio
used to determine how much you can afford to pay for a vehicle
very similar to gross debt service ratio (GDSR) except it also includes any other debt repayments - like a vehicle loan or credit card debt
the TDS should never exceed 40%
Formula
TDS =
Monthly Housing Costs + All Other Monthly Debts
———————————————-Gross Monthly Income
x 100
The TDS should never exceed 40%
ExampleChelsea and Jason are trying to decide if they can afford a new car. The car they wish to purchase will cost them $149 biweekly. They are currently living in a home with a monthly mortgage of $1,200. Heating costs are $89 a month, and property taxes are $1,300 a year. Chelsea also has a credit card debt that she is paying off with monthly payments of $120. Chelsea and Jason’s combined gross monthly income is $4,600. Calculate the TDS ratio and decide whether or not they should purchase this car. Justify your answer.
Example
Trystyn wants to purchase a vehicle with a monthly payment of $500. They have a mortgage that costs $895 per month, heating is an additional $79 a month. The annual property taxes are $1,250. Trystyn is also working to pay off their line of credit and contributes $120 a month to paying down that balance. Trystyn makes a gross monthly income of $7,215. Can they afford this vehicle, justify your answer.
ExampleKenzie wants to determine how much money they can spend on a vehicle. They are currently living in an apartment with rental fees of $900 per month. Kenzie’s rent doesn’t include heating which costs an additional $75 per month. Kenzie has student loans that costs $150 per month and their monthly income is $3,000.
Based on the TDS, what is the maximum amount of money they can spend on a vehicle.
Kenzie sees an advertisement in the paper for a new car for $130 a month. Can they afford this vehicle?
Example
Lincoln has a gross monthly income of $5,000. His mortgage is $670 per month with an additional $50 heating charge. The property taxes are $1,050 annually. He is currently paying $125 per month to pay down his credit card debt. Determine the maximum payments Lincoln can make on a vehicle based on his TDS.