Essay III - Car Loan Essay*

You are going to buy a car that will need to be financed.  You will need to look at different options and decide which will be the best choice for your situation.  You will need to find and advertisement, from a periodical or internet, for a car that you would like to purchase.  You will hand in a word processed essay, in 12 font or larger, that details your findings.

Objective:

You will use economic concepts and mathematical calculations in deciding, hypothetically, what car to buy and how to finance the purchase.  Work with your parents in experiencing this real-life application.

Process:

1.     Find an advertisement for a car that you would like to purchase.  Look at various options and discuss with your parents which car will best suit your needs. For the car  you consider, use “Edmunds Car Buying Guide” @ http://www.edmunds.com/ to learn how the advertised prices generally compare with market prices for the car of the same make, year and model.

2.     After finding the ad for the car of your choice, fill out the
Cascade Bank Auto loan application form @ http://www.cascadebank.com/personalbanking/pdfs/consumer_credit_app.pdf.     Decide whether you will have a down payment or a trade-in.  Use realistic values.  If you don’t want to put down actual information, you may make it up.  Your job could be the job you have now or a future job (Remember & Note:  this is a classroom activity and do not fax or send in your application to the Cascade Bank)

3.     Once you have found the automobile of your choice and have determined the amount you will be spending on the car, you need to calculate the monthly payments.  The “Amortization Calculator” @ http://www.bankrate.com/brm/amoritization-calculator.asp may be helpful in calculating the monthly payments according to the amount of borrowed principal.

a.     Calculate the monthly payment for your car for each option below using the monthly payment formula

4.     Provide a word processed summary of your project.  Indicate what you think your best loan option would be and justify that conclusion.  Also discuss what situations might make you decide not to take each of the following:

a.     the lowest interest rate

b.     the smallest monthly payment

c.     the shortest payoff time

d.     the loan with the lowest cost

.  In your summary, include what you learned from this project.

5.     The following information must be included in your essay:

a.     Evaluation sheet

b.     An ad for the car of your choice

c.     A completed loan application

d.     Monthly payments for each option calculated by using the monthly payment formula

e.     Total cost of the loan for each option (monthly payment multiplied by the number of payments)

f.       Printed copy of an amortization schedule of the loan option which your determined is best for you

g.     A summary of which loan option is best for you along with a justification of why that is so

After completing this essay, you will have an understanding of the process of buying an automobile via financing.

The Rubric for evaluating this essay follows:

1.      Car ad included  - 10 points

2.      Loan application included  - 10 points

3.      Application filled out correctly  - 10 points

4.      5 different monthly payments computed correctly  - 10 points

5.      Total cost of loan correctly computed for each case  - 10 points

Word Processed Summary

1.      Best loan option picked and decision justified  - 10 points

Situations Discussed

a.     Lowest interest rate  - 5 points

b.     Smallest monthly payment amount  - 5 points

c.     Shortest payoff time  - 5 points

d.     Lowest cost  - 5 points

Overall Essay Presentation

e.     Spelling, grammar & neatness  - 20 points

Evaluation:  200 Points

* Project adapted from the National Council on Economic Education @ http://www.econedlink.org