Obtaining A Car Loan

Web Quest: Obtaining A Car Loan

Introduction Task Process Resources Evaluation Conclusion

Introduction:

Close your eyes and picture this: You are heading down Dodge Street, windows rolled down, one arm on the wheel and one arm hanging out the window. You have the tunes cranked so loud that you can barely hear the roar of the engine. As the wind blows through your dangling fingers, you stomp down on the accelerator to barely escape the yellowish-red light. You assure yourself that you will stop twice at the next light. As you accelerate up the hill you feel your car chug, spit, and sputter to a defining halt. As the smoke pours out from underneath the buckled hood, a brand new Ford Mustang (full of your friends) drives by with three people hanging out each window. They honk and laugh hysterically as they head off over the horizon.

It's time for a new car. . .

Task:

For this project, you will gather information on 10 different types of vehicles that you would like to have. You will then narrow your choices down to 3 types of vehicles. Next, you will explore many of the components that goes into buying an automobile.

First, you will have to fill out a loan application and get your credit approved by a mean and vicious loan officer (me). Next, you will figure out insurance costs and monthly payments based on the information that Mr. Kasner's Bank and Trust gives to you. Thirdly, you will decide which vehicle to purchase based on the above information and create a loan amortization spreadsheet for that particular scenario. Finally, you will provide a written summary of which is the best loan option for your situation, why that is the best option, and discuss certain situations where you might not decide to go with certain scenarios.

Process:

Step 1. The first thing we need to do is find some information about obtaining a car loan. The worst thing you can do is go into a bank and not know some of the terminology or what you are after. Complete the following e-sheet on obtaining a car loan. You will need to print this out and hand it in to your teacher.

Step 2. Generate a spreadsheet (in Microsoft Excel) of the ten cars you decided you would like to test drive. The spreadsheet should include the following titles: Make, Model, Year, Color, Asking Price, & Current Mileage.

Make	Model	Year	Color	Asking Price	Current Mileage
Chevy	Impala	2001	Metallic Silver	$14,000	21,000

Some good sites for finding used automobiles (besides the newspaper) are:

autotrader	autoweb	Car Locate
autobytel	National Auto Locator	GetAuto
automallusa	Internet Auto Mall	Ebay

Most manufacturers of new vehicles have their own sites. Try out www.chevrolet.com or www.bmw.com.

Step 3. For part 3, you are going to add seven more columns to your spreadsheet. Title them as follows:

Case I Mo.Payment	Case II Mo.Payment	Case III Mo.Payment	Case IV Mo.Payment	Case V Mo.Payment	Case VI Mo.Payment	Insurance Per Year
						.

You are only going to fill three rows in for the cars that you have narrowed your selection down to. A good way to find the cost of insurance is to have your parents call their insurance agent or some good online sites for finding insurance premiums are:

Yahoo Ins. Center	All-States Quote Center	Geico
Safeco	Nationwide Direct	Progressive
Autogiant	GMAC	Insurance Genie

To fill in the other six cells (for each of the three cars you've selected), you need to use the monthly payment formula for amortization.

Where,             P is the monthly payment amount
                         L is the loan amount
                         n is the number of payments per year
                         r is the interest rate (as a decimal)
                         t is the number of years

Here are the following scenarios in determining your monthly payment:

    Case I:      8.5% for a 5 year period
    Case II:    10.25% for a 3 year period
    Case III:   9.75% for a 4.5 year period
    Case IV:   15.75% for a 2.5 year period
    Case V:     18.25% for a 4 year period

   Case VI:    7.75% for a 5 year period (semi-monthly)

Step 4. It's now time to narrow your choices down to one automobile. Since you are going to have to finance the automobile, you are going to have to fill out a loan application. You will need to print out the sample loan application and complete it. Remember, if you are legally a minor, you will need an adult to serve as a co-signor for the loan process.

Step 5. You will need to submit your loan application for approval (from 1 of Mr. Kasner's 6 banks). Your application should be filled out to the best of your knowledge. Do not use real account numbers on your loan application. If you are uncomfortable giving out financial information, then make something up. However, keep it realistic. . . we are trying to learn something here. During the interview with Mr. Kasner, keep a few things in mind:

Know WHY you want the loan.
Justify how you plan on paying the loan back.
Be able to discuss the different scenarios.
Review your loan application before the appointment.
Be able to discuss costs associated with owning a car.
Make sure you know about the automobile.
Review the basic loan terminology from the e-sheet.

Step 6. Congratulations! Your loan application has been approved. Your interest rate has been set at 8.5%. Now, you need to decide the term of your loan. Your three options are: 36 months, 48 months, or a 5-year loan. Since monthly payment amount is not always the most important criteria in deciding which loan to accept, you need to calculate the monthly payment, and the total amount of interest paid over the term of the loan (i.e. the cost of the loan). This would look nice in a Word Table or an Excel document.

Step 7. Now, you will need to create a loan amortization worksheet for the loan option that you decided on (8.5% for ? months). You are going to do this through a spreadsheet application like Microsoft Excel or ClarisWorks. Follow the sample template to create your own Amortization worksheet. Add your own bells and whistles to spice the worksheet up.

Step 8. Finally, you are going to generate a report that includes all your information. The report should include the following:

*An advertisement for the car of your choice, including all

relevant information.

*Your completed loan application.

*Spreadsheet for all 10 cars (completely filled in for 3).

*A written summary of which (of the 6 scenarios) is the

best loan option for your situation.

*A discussion of what might make you decide not to take

a. the lowest interest rate

b. the smallest payment amount

c. the shortest term

d. the loan that will cost you the least.
*An amortization worksheet for the loan you decide
to go with.

Step 9. Now that you have to come up with all this extra money, you will need to get a job. For the last phase of this project, you are going to put together a resume that would allow you to search for a job (of your choice). You may use a resume template off of Microsoft Word. You may need to search for information on how to develop a resume.

Step 10 (optional extensions). Do either I, II or III:

I.

Part A:   If the loan amount is fixed at $6900 and the interest rate is fixed at 6%, plot the payment as a function of time. Use the graph to answer the following questions:

1. If you want to pay $80 a month, how long will it take to pay off the loan?

2. If you want to pay off the loan in 3 years, what monthly payment must you make?

Part B: If the payment amount is fixed at $40 monthly and the interest rate is fixed at 14.2%, plot the loan amount as a function of time. Using the graph, answer the following questions:

1. If you want to pay for the loan for 6 years, how much money can you borrow

2. If you want to borrow $3000, how long will it take you to pay off the loan?

II.

Part A:   If the loan amount is fixed at $5300 and the interest rate is fixed at 11%, plot the payment as a function of time. Use the graph to answer the following questions:

1. If you want to pay $80 a month, how long will it take to pay off the loan?

2. If you want to pay off the loan in 3 years, what monthly payment must you make?

Part B: If the payment amount is fixed at $45 monthly and the interest rate is fixed at 12.9%, plot the loan amount as a function of time. Using the graph, answer the following questions:

1. If you want to pay for the loan for 6 years, how much money can you borrow

2. If you want to borrow $3000, how long will it take you to pay off the loan?

III.

Part A:   If the loan amount is fixed at $4200 and the interest rate is fixed at 12%, plot the payment as a function of time. Use the graph to answer the following questions:

1. If you want to pay $80 a month, how long will it take to pay off the loan?

2. If you want to pay off the loan in 3 years, what monthly payment must you make?

Part B: If the payment amount is fixed at $66 monthly and the interest rate is fixed at 10.5%, plot the loan amount as a function of time. Using the graph, answer the following questions:

1. If you want to pay for the loan for 6 years, how much money can you borrow

2. If you want to borrow $3000, how long will it take you to pay off the loan?

Resources:

The above links are excellent for finding information on used cars and insurance rates. Here are a few other resources to help you out:
Omaha World Herald www.omaha.com
Des Moines Register desmoinesregister.com
Lincoln Journal Star www.journalstar.com
Computer Resources:
Microsoft Excel
Microsoft Word 2000
Internet Explorer
Netscape Navigator
Human Resources:
Call your local insurance agent
Visit a local used car dealer
Visit a local financial institute

Evaluation:

You will be evaluated based on the Car Loan Assessment Scoring Rubric. You will need to print this out and hand it in with your final report.

Conclusion:

By now, you should be familiar with many of the procedures that go into purchasing an automobile. Hopefully you have learned many things that will help you in the near future.

Some of the things that you should've learned is that it is not always in your best interest to choose a loan option with the lowest monthly payment. Also, that much research needs to go into purchasing an automobile so that you get the best "bargain for your buck". I also hope that you have become more familiar with some of the terminology associated with obtaining a loan of any kind. This will be helpful when you set out to buy your car for real (or in the near future when you need a student loan for college). Nonetheless, I hope you picked up on some informative things.

Hosted by www.Geocities.ws