Lesson 3:
Top Gear:
Researching
and Buying a Car
Buying a car is one of the first major financial decisions that many teens and young adults face. While several considerations factor into this purchase, one of the most important is the buyer’s monthly payment, which is based on the car’s purchase price and terms of the loan. In this lesson, you will shop for a car virtually, evaluating various loan options and learning what it means to be “creditworthy.”
Learning Objectives:
- Understand the concept of creditworthiness
- Research consumer borrowing
- Compare various types of car loans and lenders
Essential Question: “How can I turn my dream of owning a car into reality?”
Investigate: Dream Car
[Time Required: 5 minutes]
- Begin by considering your dream car. What would you drive if money were no object? Why? What factors go into purchasing a car besides price?
- Next, imagine you have saved $5,000 toward the purchase of a car, an amount that can serve as a down payment. What steps do you think you should take next toward making your purchase?
Student Preparation
[Time Required: 15 minutes]
- Download Seal the Deal: Understanding Car Loans, which outlines some of the next steps in the process. Visit sites such as truecar.com and edmunds.com to find the purchase prices of potential cars. Consider the factors that go into this decision: if you select a vehicle that costs much more than $5,000, you will be in debt for longer (due to a loan). Other factors include gas mileage, new vs. used, depreciation, and matching a car to one’s lifestyle.
Challenge: Understanding Car Loans
[Time Required: 15 minutes]
- Consider how a car that costs more than their $5,000 could be financed. Understand that buyers often take out loans from a bank to cover the remaining cost and that these loans will need to be repaid on a monthly basis, with interest.
- Calculate what your monthly payment would be for each of the loans on the student activity sheet. How long would it take to repay the loan in order to own the car in full?
- Consider which loan you would choose and to explain your reasoning. Is it always better to choose the loan with the lowest interest rate? Why or why not?
- Ask yourself whether you think you will automatically get the loan you want. Why or why not? Understand that banks choose to whom they will extend loans.
- What factors do you consider when lending something to a friend or family member? Responses may include trust, reliability, history of returning borrowed items in good shape, and ability to pay for something borrowed if it breaks.
- Understand that this concept is known as “creditworthiness” and is an analysis made by a lender when deciding whether or not to lend money to a consumer. You can take steps to protect your credit now, including paying any bills on time.
Reflection
[Time Required: 10 minutes]
Reflect in your journal about the three most important factors to consider when buying a car. Why are these factors important? How has your thinking changed since the beginning of the lesson? Is your dream car the same or would you choose a different vehicle? Why?
Americans aren’t typically known for their financial responsibility – yet many are already using complex financial strategies. For example, shopping at the mall calls for cost comparisons, and saving for a skateboard requires budgeting. To learn about responsible money management, it’s important to take a look at the building blocks of financial decision-making. In this lesson, we will examine the spending decisions students already make. Then examine real-life spending scenarios and research, analyze, and present their recommendations.
Learning Objectives:
- Explore personal financial choices
- Learn to make informed financial decisions
- Consider what it means to be financially responsible
Worksheet One: