6.4 Auto Loans

What makes a vehicle a bad investment?

• as a use asset, car values nearly always decline over time

• the quality of cars made today is so low that there is no value in owning a car

• the value of a car adds to a household's ability to increase human capital is too high to warrant the cost of insurance

• it is impossible to justify owning a car if someone has to borrow money for the purchase, which makes cars a bad investment choice

When making an automobile purchase decision, you always attempt to find the vehicle that provides the _____ price and the _____ quality.

• lowest; lowest

• highest; highest

• lowest; highest

• highest; lowest

When searching for a vehicle to purchase, which of the following variables is an important factor in the purchase decision-making process?

• reliability

• safety

• cost efficiency

• all of the choices are correct

Which of the following purchase strategies will generally generate the lowest cost for someone purchasing a vehicle?

• using money from savings to fund the entire purchase

• using a small amount of savings for a down payment and borrowing the remainder

• borrowing 100% of the purchase price

• liquidating high-return stock and mutual fund investment to fund the entire purchase

Which of the following individuals is in most need of a personal vehicle?

• Lubor, who lives within walking distance to public transportation in New York City

• Nicole, who lives in the suburbs but works in a city 35 miles from her home

• John, who is retired and living in a nursing home

• Michelle, who is in high school and wants a more convenient way to get to school

Maribelle is looking to purchase a car. She is considering all of her options. She is a college student working 30 hours per week. She has been riding the bus to work and school, but it requires 2 hours per day of transit time to get to work (about 25 miles round-trip). If she had her own car, she could cut this time down to 40 minutes a day. Based on this information, which vehicle choice would be the best to Maribelle?

• compact luxury car

• full-sized pickup truck

• an electric vehicle

• inexpensive compact car

How much can Jorge afford to spend on a monthly car payment if his excess monthly cash flow is $380, and he expects the following monthly expenses: $45 gas, $90 insurance, and $20 for maintenance and repairs?

• $75

• $225

• $380

• There is not enough information available to answer this question

Answer explanation

Take his cash flow and subtract all expenses for his monthly car payment

Melba has been shopping for a new car. She has already visited four dealerships, where she test-drove six cars. When she went to the fifth dealership, the salesperson asked where else she had been that day. Melba lied and said she was just now starting to look at cars. How did the salesperson know that Melba was lying

• the salesperson could tell by looking at the condition of her current car

• car dealerships call each other on a daily basis indicating who has been shopping that day

• the salesperson has a unique mind-reading ability

• Melba's credit report showed that other dealers had accessed her credit score before she test drove their cars

A(n) _____ in the loan interest rate and a(n) _____ in the loan duration will increase the monthly auto loan payment.

• decrease; increase

• increase; decrease

• increase; increase

• decrease; decrease

Describe the pattern in which vehicles decrease in value over time. Given this pattern, when is the best time to purchase a vehicle?