Acquiring a Vehicle

1
Section 16.1
2
Chapter
Owning a Vehicle
16
Section 16.1 Acquiring a Vehicle Section
16.2 Motor Vehicle Insurance
3
What Youll Learn

• How to identify important parts of a loan
  agreement (p. 338)
• How to trade in a vehicle (p. 341)
• How to identify the pros and cons of leasing a
  vehicle (p. 342)

4
What Youll Learn

• How to compare options for buying a pre-owned
  vehicle (p. 342)
• How to pursue legal remedies if you buy a
  defective vehicle (p. 347)

5
What Youll Learn

• How to recognize some federal laws designed to
  protect you when you buy a vehicle (p. 348)
• How to summarize the legal aspects of repairing
  your vehicle (p. 350)

6
Why Its Important
Knowing about financing, buying, and leasing a
vehicle will enable you to make better purchase
decisions.
7
Legal Terms

• finance charge (p. 338)
• annual percentage rate (APR) (p. 338)
• Used Car Rule (p. 344)
• Buyers Guide (p. 344)
• repossess (p. 346)
• adhesion contract (p. 347)

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Section Outline
Laws of Ownership Financing a Vehicle Buying a
New Vehicle
Trade-In
9
Section Outline
Leasing a New Vehicle
Consumer Leasing Act
Buying a Pre-Owned Vehicle
Buying from a Dealer Buying from a Private
Party Buying from Rental Companies
10
Section Outline
The Contract to Buy a Vehicle
What to Do if You Buy a Defective Car
Federal Consumer Protection
Odometer Protection
Repairing a Vehicle
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Pre-Learning Question
What laws do you think apply to buying a vehicle?
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16.1
Laws of Ownership
The law that applies to the purchase of a vehicle
comes from several sources.
Consumer protection laws
Laws regulating credit
The Uniform Commercial Code
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Pre-Learning Question
What information should you have before you buy a
vehicle using credit?
14
Financing a Vehicle
One of the first steps in buying a car is to
decide how much you can afford to pay. You can
buy a car

• with cash
• with credit

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Financing a Vehicle
Federal law requires lenders to disclose the
finance charge and annual percentage rate (APR)
to borrowers.
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Financing a Vehicle

• The finance charge is the cost of the loan in
  dollars and cents.
• The annual percentage rate (APR) is the true
  interest rate of the loan.

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What You Should Know Before You Buy

1. The exact price youre paying for the vehicle
2. The amount youre financing
3. The finance charge

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What You Should Know Before You Buy

1. The APR
2. The number and amount of payments
3. The total sales price (the sum of the monthly
   payments plus the down payment)

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What is the difference between the finance charge
and annual percentage rate?
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ANSWER
The finance charge is the dollar amount of the
interest, and the APR is an interest rate.
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Pre-Learning Question
What steps should you take before buying a new
vehicle?
22
Buying a New Vehicle
After deciding how much you can afford to pay for
a car, when buying a new car you should

• learn about the cars you may be interested in
• research pricing

23
Trade-In
When buying a new car, do not discuss a trade-in
with the dealer until you have negotiated the
best price for your new car.
24
Trade-In
You should also know the value of your trade-in,
which can be found on the Internet or in the
library.
25
Pre-Learning Question
How is leasing a vehicle different from buying
one?
26
Leasing a New Vehicle
The advantages to leasing a new vehicle are

• low down payment
• smaller monthly payments

27
Leasing a New Vehicle
The disadvantages to leasing a new vehicle are

• most expensive way to acquire a car
• after making a lot of payments, you end up with
  nothing to trade in toward your next vehicle

28
Consumer Leasing Act
The Consumer Leasing Act is a federal law
requiring businesses to tell you about all of the
terms of a lease of personal property.
29
Consumer Leasing Act
This information can be used to compare different
leases or to compare the cost of leasing with the
cost of buying.
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Pre-Learning Question
Where can you buy a pre-owned car?
31
Leasing a New Vehicle
A pre-owned vehicle may be purchased from

• a new car dealer
• a used car dealer
• a car rental company
• a private party

32
Leasing a New Vehicle

• Sometimes banks and loan companies

33
Buying from a Dealer
A used car dealer may have a large selection of
cars, but often does not maintain facilities to
service the car after you buy it.
34
Buying from a Dealer
New car dealers often sell used cars that they
have taken in for trade and have service
facilities.
35
Warranties
When selling a vehicle, a dealer

• gives an implied warranty that the vehicle is
  merchantable, unless this warranty is excluded.
• often gives a 30-, 60-, or 90-day guarantee.

36
The Used Car Rule
The FTCs Used Car Rule requires all used car
dealers to place a large sticker, called a
Buyers Guide, in the window of each used vehicle
they offer for sale.
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The Used Car Rule
The guide explains any specific warranty
protection that is provided and also states
whether there is

• no warranty,
• an as is warranty, or
• an implied warranty.

38
Buying from a Private Party
The advantage to buying from a private party is
that the prices are lower, but there are
disadvantages, as well.

• no implied warranty of merchantability
• no recourse if something goes wrong

39
Buying from a Private Party
Another disadvantage is that the car might be
stolen. In this case, a bank or loan company
may have the right to repossess, or take back,
the car, regardless of who presently owns it.
40
Buying from a Private Party
Before you buy from a private party, be sure to

• test-drive the vehicle
• ask for the vehicles maintenance record
• talk to previous owners
• ask to see the certificate of title

41
Buying from Rental Companies
Advantages

• are usually only a year or two old
• can be good buys
• usually have had regular maintenance
• come with warranties

42
Buying from Rental Companies
Disadvantages

• have probably had heavy use
• have high mileage

43
Pre-Learning Question
What form should a contract to buy a vehicle
take?
44
The Contract to Buy a Vehicle
Under the UCC, a contract for the sale of goods
valued at 500 or more must be in writing to be
enforceable.
45
The Contract to Buy a Vehicle
When private parties enter into a contract, they
can simply write on a piece of paper that one
party agrees to sell and the other party agrees
to buy the vehicle.
46
The Contract to Buy a Vehicle
The contract between private parties must also
identify the vehicle and be signed by the seller.
47
The Contract to Buy a Vehicle
When a contract is entered into between a private
party and a dealer, the private party is usually
at a disadvantage. The dealer asks the buyer to
sign a printed form.
48
The Contract to Buy a Vehicle
A sentence on the front of the form says that the
buyer agrees to the terms on the reverse side.
The back of the form contains a full page of
small-print terms that favor the seller.
49
The Contract to Buy a Vehicle
Such a standard-form contract is called an
adhesion contract. Smart buyers read the small
print and cross out items with which they
disagree.
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What to Do if You Buy a Defective Car
If you buy a car that continuously has mechanical
problems, you should notify the seller
immediately.
51
What to Do if You Buy a Defective Car
The seller can be asked to

• fix the problem
• pay to have the vehicle fixed
• give you your money back

52
Revoking the Acceptance
If you buy a car that doesnt conform to the
contract, you may be able to revoke your
acceptance, even after taking possession of the
vehicle.
53
Revoking the Acceptance
This revocation is allowed under the UCC if the
defect is serious and undetectable. It must be
made within a reasonable time after the defect is
discovered.
54
Notifying the Seller about Defects
Buyers must notify sellers of defects in vehicles
within a reasonable time after the purchase. If
you fail to do so, you may lose the right to
recover.
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State Lemon Laws
Many states have passed lemon laws to protect
consumers when they buy defective vehicles,
either new or used.
56
State Lemon Laws
A lemon is defined in one state as a
substantially defective new car that has been at
a dealers three times for the repair of the same
defect or any combination of defects.
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Name two places to buy a pre-owned vehicle.
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ANSWER
Answers include a new car dealer, a used car
dealer, a car rental company, or a private party.
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Pre-Learning Question
What federal laws help protect vehicle consumers?
60
Federal Consumer Protection
The federal Motor Vehicle Information and Cost
Savings Act has established bumper standards for
passenger vehicles. The act also establishes
average fuel economy standards.
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Odometer Protection
It is illegal for a vehicle owner to turn back or
disconnect the odometer, or mileage indicator, of
a vehicle.
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Odometer Protection
The federal odometer law requires everyone who
transfers a vehicle, unless it is more than 25
years old, to provide a written mileage
disclosure statement.
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Pre-Learning Question
What state laws can help protect vehicle
consumers?
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Repairing a Vehicle
Many state laws require motor vehicle repair
shops to be licensed and registered. Laws are
being adopted in many states requiring

• repair estimates
• advanced disclosure of prices
• specific training for mechanics

65
Repairing a Vehicle
Some states require automobile repair shops to be
bonded. The bonding company is an insurer who
must pay the consumer for losses suffered as a
result of wrongdoing on the part of the repair
shop.
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Section 16.1 Assessment
Reviewing What You Learned

1. What six aspects of the loan agreement should you
   be sure you understand before you sign the loan
   documents?

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Section 16.1 Assessment
Reviewing What You Learned
Answer
(1) exact price (2) amount financed (3) finance
charge (4) APR (5) number and amount of payments
(6) total sales price
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Section 16.1 Assessment
Reviewing What You Learned

1. What should you do before you buy a new car?

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Section 16.1 Assessment
Reviewing What You Learned
Answer
Determine how much you can afford decide what
car model/options you want conduct research on
pricing.
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Section 16.1 Assessment
Reviewing What You Learned

1. Discuss the advantages and disadvantages of
   leasing a car.

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Section 16.1 Assessment
Reviewing What You Learned
Answer
Advantages low down payment, smaller monthly
payments. Disadvantages most expensive way to
obtain a new car after making payments, you own
nothing and have nothing to trade in on your next
vehicle.
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Section 16.1 Assessment
Reviewing What You Learned

1. Why might it be risky to purchase a pre-owned
   vehicle from a private party?

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Section 16.1 Assessment
Reviewing What You Learned
Answer
Private parties do not give the implied warranty
of merchantability. There is no recourse if
something is wrong with it.
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Section 16.1 Assessment
Reviewing What You Learned

1. What should you do if you buy a defective car?

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Section 16.1 Assessment
Reviewing What You Learned
Answer
Notify the seller at once.
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Section 16.1 Assessment
Reviewing What You Learned

1. What is the purpose of the federal odometer law?

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Section 16.1 Assessment
Reviewing What You Learned
Answer
It requires everyone who transfers a vehicle,
unless it is over 25 years old, to give the
transferee a written mileage disclosure statement.
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Section 16.1 Assessment
Reviewing What You Learned

1. Why do some states require auto repair shops to
   be bonded?

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Section 16.1 Assessment
Reviewing What You Learned
Answer
The bonding company acts as an insurer who must
pay the consumer for losses if the repair shop
causes damage.
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Section 16.1 Assessment
Critical Thinking Activity Buyers Guide
Visit a used car dealer and read the Buyers
Guides displayed on several of the cars. Decide
whether you would be willing to purchase the cars
based on the information provided in the Buyers
Guides.
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Section 16.1 Assessment
Critical Thinking Activity Answer Buyers Guide
Answers will vary depending on the Buyers Guides
the students inspect.
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Section 16.1 Assessment
Legal Skills in Action Automobile Warranties
In teams of four, contact three automobile
dealerships or car rental companies that sell
used cars. Ask about the warranties they provide
on the used cars they sell.
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Section 16.1 Assessment
Legal Skills in Action Automobile Warranties
Make sure you find out if the warranties cover
both parts and labor. Next, as a group, come to
consensus as to which warranty is best.
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Section 16.1 Assessment
Legal Skills in Action Answer Automobile
Warranties
Answers will vary but should include a comparison
of the different warranties located by the groups.
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End of Section 16.1