“Deals on Wheels!” Car Loan Project

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A. Introduction: (About 5 minutes)

Address Students:

How many of you own your own car? First car or second car? Is this the car of your dreams? Whether or not you own your own car, think for a minute, “What is your dream car?”  Close your eyes and picture yourself getting into the driver’s seat of your ideal car, putting the key in the ignition, starting the car and driving down the street. But how can you afford the car of your dreams?   How do you go about getting this car? Job? Win the lottery? Mom and Dad give you the money? Take out a loan? Well, how much will thatcost you??? Do you have good credit? How do you get credit? And once you get this car, how do you support it? These are all questions that we will be examining in this lesson.

B. Body

Topic Outline

Address Students:

People borrow money or use credit to purchase something in the present that will be paid for with future income. Borrowing increases the ability to purchase the things people want now, like a new car! A person who is considered “credit worthy” is one who is trusted to borrow only what he or she can repay. Before a person can make a big decision like buying and financing a new car, they must first analyze their monthly income and expenses to figure out how much they can actually afford per month or explore the option of buying the vehicle “outright” without financing (using savings).

The concept that “there is no such thing as a free lunch” means that there is a cost to every decision, whether monetary or intrinsic. Good decisions require a clear understanding of alternatives. Students must learn to make choices among alternatives in order to use their income or resources wisely.

In this lesson you will learn:

• How to calculate monthly car payments using different rates of interest.
• How to calculate the maximum amount that can be financed/borrowed given a preset estimated/budgeted monthly payment.
• How limited resources cause people to make choices.

Teacher Activities (About 10 minutes)

1. Demonstrate how to figure the total vehicle cost including tax and license fees, trade-in value, and down payment.  Use Handout #1—Calculating Amount to be Financed/Borrowed Sample Teacher Overhead (students should have student copy).
2. Discuss how the total amount to be financed (total cost of vehicle), different rates of interest, and length of car loan determine your monthly car payments.  Include in the discussion the fact that students need to first determine how much they can afford per month towards a car as dictated by their monthly budget (income minus existing expenses).
3. Demonstrate how to use a Loan Calculator on the Internet (www.bankrate.com) to calculate monthly car payments using various rates of interest and terms of loan. 

Student Activities (About 30 minutes)

1. Have students complete Handout #2—Calculating Amount of Monthly Payment, Total Finance Charge and Total Cost of Loan using regular calculators and a Loan Calculator from www.bankrate.com.
2. Go over results as a class.  (Show Handout #2—Calculating Amount of Monthly Payment, Total Finance Charge and Total Cost of Loan Answer Key on overhead for students to quick-check answers)  Clear up any questions.
3. Discuss pros and cons of different interest rates and terms of loan and the impact these have on a person’s monthly budget.  Brainstorm ways a person could qualify for lower rates of interest.
4. Have students complete Handout #3—Creating a Budget.  In this exercise students will 1) research two vehicles they would like to purchase; 2) calculate the monthly payment, total finance charge and total cost of loan for each of the vehicles; 3) create a spreadsheet in Excel that shows their total monthly income and fixed and flexible expenses; 4) chart their findings in a pie chart, including labels and percentages; 5) estimate what they could pay per month and calculate the highest dollar amount they could finance/borrow for the vehicles they have researched; 6) analyze their findings and write a 5-paragraph essay about: what vehicle they can afford to buy and why; which loan would they would take and why; which features make this loan more appealing than the others.

C. Closure:  (About 5 minutes) 

Address Students:

It is very important to make sure that you can affore your monthly car payment along with your living expenses and other expected espenses such as registration, insruance, maintenance and gas. Dont' forget to allow a buffer for unexpected expenses too.

Good credit habits begin early.  Repaying loans and returning borrowed items in good condition establish lifelong patterns of responsibility.  Don't borrow what you can't repay - Be a responsible borrower who repays as promised, showing you are worthy of getting credit in the future.  Before you borrow, compare your total payment obligations with income that you will have available to make these payments.

Compare interest rates - Obtain rate information from multiple financial services firms to get the best value for your money.

The concept that “there is no such thing as a free lunch” means that there is a cost to every decision, whether monetary or intrinsic.  Good decisions require a clear understanding of alternatives.  Students must learn to make choices among alternatives in order to use their income or resources wisely.

Are you able to buy your dream car?  You should now have a better idea about financing and how interest rates and the length of a loan help in determining which car you can afford to buy within a set monthly payment amount.

Have fun in the driver's seat, whatever you are driving, but...drive safely! 

Find out more about credit, buying on credit, and how credit affects you and applies to the business world around you by enrolling in a business class at your high school or taking a class at your local community college.  

Additional Teacher Comments:

We have just completed a project that has provided a little exposure to the world of finance and business.  Why did we do this?  Because most adults work in the business environment and the most popular college major is business.  This project was designed to expose you to business topics and concepts in preparation for your future.  There are many advantages to further exploring finance and business now while in high school. Here are some of them:

• To find out if you like the subject before committing to a career path.
• To gain skills to get a part-time or summer job.
• To prepare for a career after high school or to put yourself through college.
• To strengthen your college applications.
• To begin earning college credits while in high school.

Here’s how you may explore more about finance and business:

• Develop an educational plan with your counselor.
• Make the most of block or trimester scheduling and take business electives.
• Participate in ROP classes and/or internships.
• Take required classes in summer school to allow for more electives during the school year.
• Join business-related clubs or activities on campus.
• Investigate opportunities in your community, such as Junior Achievement, Scouting, or volunteer work.
• Attend community college night or summer classes.

Sierra Community College , with state funding, worked with high school teachers in a year long project to create and test these high quality lesson plans. The objective was to provide high quality, ready-to-use lessons that integrated vocational and academic standards, concepts and curriculum.

Read more about the FAB grant and its mission.