Vehicle Finance - Part #2Financing a New Vehicle

Before you Buy after you choose a type of vehicle and a dealership be sure to do the following things before you purchase your vehicle

check the sticker price of the vehicle

obtain written quotes

test drive

read the owner’s manual

read the warranty agreement

read the contract fully before you sign

check that your financing is in order

Buying a New Vehicle

When purchasing a new vehicle it is important to know and understand all of the charges

The charges include: base price, options, freight charges, and a number of taxes.

There is also a trade in value if you trade in your old vehicle, this is removed from the purchase price

Taxes

GST and PST must be paid on a new or used vehicle purchased from a dealer

In Manitoba and British Columbia, a vehicle purchased privately requires only PST be paid

Sticker PriceAlso known as the MSRP (Manufacturer’s Suggested Retail Price)

The selling price that includes the base price, optional equipment, air conditioning excise tax, and a destination or freight charge.

The air conditioning tax is a $100 payment required for vehicles with air conditioning that are purchased in Canada or imported from the U.S.

The MSRP should be the same at all dealers, however, the actual selling price will most likely differ from dealer to dealer.

Sticker PriceIn addition to the MSRP, fees and taxes need to be factored into the total purchase price of a vehicle.

These include a documentation fee, tire tax, PST of 8% in Manitoba and GST of 5%.

To find the total purchase price:

Add the MSRP, documentation fee, and tire tax

Subtract trade-in allowance, if applicable

Multiply by 1.13 to include both taxes in Manitoba

ExampleFind the sticker price for the following 2 door mustang. The base price is $25,880 and it has the following optional equipment:

A preferred equipment package: $1,260

Four speed automatic transmission: $995

AM/FM stereo with CD Player: $200

Air Tax: $100

Freight: $620

ExampleFind the sticker price for the following Camaro Z28 sport coupe with a base price of $20,798. There is also a $5000 trade in allowance on the old car.

A preferred equipment package: $1,585

Automatic transmission: $695

Documentation fee: $150

Air Tax: $100

Freight: $655

ExampleYani purchases a new van with an MSRP of $26,985. She gets a trade-in allowance of $4,500 for her old vehicle. The documentation fee is $699, and the tire tax is $15. Calculate the total price of the vehicle.

Financing

Before you buy a new vehicle you must determine how you will be purchasing it

Most people finance their vehicle through a dealership or a third party like their financial institution

If you have saved up enough money you can “pay cash” for the vehicle meaning you pay off its entire cost at the time of purchase

Purchasing Outright

to calculate the cost of purchasing a vehicle without a loan we use the following steps:

Add together the MSRP, documentation fee, and tire tax

Subtract the trade-in allowance

Add the applicable taxes

ExampleEdna purchases a new automobile from a dealership in Manitoba. The vehicle has an MSRP of $22,998. Edna receives a trade-in allowance of $6,529 for her old vehicle. Calculate the total purchase price of the new vehicle if the documentation fee is $460 and the tire tax is $25.

Calculating Car Paymentsas we learned in home finance, the less interest you have to pay the better off you are so the goal is to have an interest rate closest to 0% when purchasing a vehicle

the most economical way to purchase a vehicle is paying upfront without a loan, this way you avoid the interest

if that is not possible for you, saving up for a larger down payment will help reduce the amount of interest paid over the course of the car loan

Calculating Car Paymentswhen someone finances, the individual pays more for the vehicle than if they were to pay outright at the time of purchase

it is important to consider the size of the monthly payment on the loan, this way you can ensure that you will be able to make your payments

financing is known as a deferred payment, the difference between the deferred payment and the total purchase price is known as the finance charge (interest)

Calculating Car PaymentsCalculating car payments is very similar to calculating mortgage payments.

You will need a Monthly Vehicle Loan Payments Table

The formula is:

(Loan ÷ 1000) x Amortization Table Value = Monthly Payment

Don’t forget to subtract the down payment first

ExampleCurtis is purchasing a vehicle. The bank will lend him $16,500, repayable over 5 years at an interest rate of 6.25%. Calculate the monthly payment for this vehicle.

ExampleYanni is purchasing a vehicle. The bank will lend them $21,000, repayable over 3 years at an interest rate of 7.25%. Calculate the monthly payment for this vehicle.

What is the total amount paid over the loan (deferred payment)?

What is the total amount of interest paid over the course of the loan (finance charge)?

ExampleMoira is able to make a down payment of $5,000 on her new vehicle. The purchase price is $20,340.32, in order to pay off this vehicle she must finance it for three years at a rate of 8.25%. Calculate the monthly payment, the deferred payment and the finance charge for this vehicle.

ExampleRon Swanson purchases a vehicle for $35,650 and can make a down payment of $12,000. In order to finance the rest of the vehicle he takes out a five year loan at 9.75%. Calculate his monthly payment, deferred payment, and finance charge for this vehicle.