The Johnsons Decide to Buy a Car

After several years of riding a bus to work, Belinda finds that she can no longer do so because her employer moved to a location that is not convenient for public transportation. Thus the Johnsons are in the market for another car. Harry and Belinda estimate that they could afford to spend about $12,000 on a good used car by making a down payment of $2,000 and financing the remainder over 36 months at a 6 percent interest rate for $304 per month.

(a) Make suggestions about how the $304 might be integrated into the Johnsons budget (Table 3-6 on page 97) by making reductions in certain expense categories.

(b) If they cannot make room in their budget for a $304 monthly car payment, would you recommend they finance a vehicle for 48 or 60 months? Why or why not?

(c) Assume that the Johnsons have narrowed their choices to two cars. The first car is a three-year-old Chevrolet with 44,000 miles; it is being sold for $12,500 by a private individual. The seller has kept records of all maintenance and repairs. The second car is a three-year-old Toyota with 51,000 miles, being sold by a used-car dealership. Harry contacted the previous owner and found that the car was given in trade on another car about three months ago. The previous owner cited no major mechanical problems but simply wanted a bigger car. The dealer is offering a written 30-day warranty on parts only. The asking price is $12,200. Which used car would you advise the Johnsons to buy? Why?

(d) Would you recommend that they purchase or lease a low-priced new vehicle instead of buying a used vehicle? Why or why not