Real world: Let's buy a car!

0:00(upbeat music) - [Narrator] Khan Academy Financial Literacy Theater proudly presents "The Purchase." This is Wally. Say hi to the people, Wally.

0:09- [Wally] Hi to the people, Wally. - [Narrator] Wally is about to buy a car from a dealership.

0:14- [Wally] Oh boy. - [Narrator] Unfortunately for Wally, he is the world's most gullible man.

0:19- [Wally] What does gullible mean? - [Narrator] Look up, Wally. The definition is written on the ceiling.

0:24- It is? - It isn't. To be gullible is to be easily manipulated, to fall for every last trick in the book. He's a pushover. Whatever Wally does while buying a car, you probably shouldn't do. Let's begin at the dealership.

0:40- Wally. - Hiya. - [Salesperson] I knew you were a winner from the moment you filled out that contact form. I gotta say, buddy boy, everything looks swell.

0:49- [Wally] Gosh, I can't wait to drive this automobile off the lot.

0:53- [Salesperson] Now let's talk about that. I know you were interested in the KA7.

0:56- [Wally] Yes. What a car. - [Salesperson] I have bad news. That car is no longer available, but we do have a JJ Crambler.

1:03- [Wally] Oh, for the same price? - [Salesperson] Just a little bit more. You'd hardly notice a difference.

1:07- [Narrator] This tactic is called the bait and switch. Wally came in intending to get one car, but the dealer is claiming to only have access to a more expensive one. He came in for the bait and they switched it out for something else. A classic confidence trick.

1:25- [Wally] But, but I saw several KA7s in the lot.

1:28- [Salesperson] Those have all been sold. They're waiting for pickup.

1:31- [Wally] Ah, geez. Okay, well, how long till the next ones come in?

1:35- [Salesperson] Who can say, supply chains, you know? Everything's so messed up lately. Could be weeks, months, never.

1:42- [Wally] Wow. I guess let's go look at what you've got then. (screen whooshing)

1:47- [Salesperson] Here we are at JJ Crambler.

1:50- [Wally] Wow. That sure is a car. - [Salesperson] This is the premium trim too, the JJ Crambler QX.

1:58- [Wally] What's in the premium trim? I was thinking of maybe the more basic model.

2:03- [Salesperson] Sure, you could do that, but you'd miss out in the heated leg lamps, the 360 moonroof.

2:07- [Narrator] This is another classic dealership move, the up-sell, trying to package in the premium features to bump that total price up just a little bit more.

2:17- [Salesperson] And the undercarriage lighting.

2:19- [Wally] And, and does this still fall within my budget? I told you I didn't wanna spend more than $15,000. You said the Crambler was just a bit more. How much is a bit?

2:29- [Salesperson] Hmm. 5,000 more. - [Wally] One more time please.

2:32- [Salesperson] 5,000 more. - [Salesperson] That's not just a bit.

2:33- [Salesperson] Listen, Wally, do you want those add-ons or not? This is a high-end automotive platform we're looking at here.

2:39- [Wally] I, I, I, I guess so. I mean, I have a budget to stick to, you know?

2:42- [Salesperson] I have every confidence that we can get you outta here with a low monthly payment. How does under $300 a month sound?

2:49- [Wally] Gosh, that sounds great. - [Narrator] Okay, I can't take this anymore. Wally, come with me. Dealer, you stay put.

2:58- But-- - Sh. - [Wally] Whoa. Where are we?

3:02- [Narrator] The realm of numbers, Wallace, a place of pure thought.

3:08- [Wally] Gosh. - [Narrator] Now, when the dealer said they were going to offer you a car payment for under $300 a month, did you notice something missing?

3:18- [Wally] She didn't say, please. - [Narrator] They didn't say how long the loan term was. Sure you can get that price under $300 a month. But they do it by extending the loan period. Watch. Say the car costs $20,000 and you put down a 10% payment right off the bat.

3:37- [Wally] Yeesh, okay. - [Narrator] If you do that for 48 months, that's about $431 a month. And at 7% interest, you're looking at another $2,689 in interest. But if you do that for 78 months, suddenly your monthly payment is 287 but your total interest jumps to 4,456.

4:00They're making way more money in interest off that longer loan. Do you see what I'm saying, Wally?

4:05- [Wally] I do. - [Narrator] You're gonna get ripped off.

4:07- [Wally] I know. - [Narrator] This isn't even the car you wanted.

4:10- [Wally] It isn't. - [Narrator] So get back in there and stand up for yourself.

4:14- [Wally] Yeah. - [Narrator] Okay, I'm gonna send you back. Three, two, one. (screen whooshing) (fingers snapping)

4:21- [Wally] I'm not really sure I'm interested in this car. I think I'd like to hold out for AKA7.

4:26- [Salesperson] You know, those cars don't have a lot of resale value.

4:29- [Wally] That's okay. I'm intending to have it for a long time.

4:32- [Salesperson] The Cramblers are flying off the lot, buddy boy. You might miss your chance to own this magnificent titan of the road, Wally. A lot of folks are interested in these cars, Wally. Wally, don't you wanna catch the wave?

4:43- [Wally] You are saying my name a lot. - [Salesperson] Listen, if you drive away in the JJ Crambler today, I'll throw in some paint and sealant for free. That's a $250 value, Wally. You're gonna leave that money on the table?

4:54- [Wally] You know, if it's all the same to you, I might take some time to think it over. I don't like being pushed around. Thanks. (salesperson chuckling)

5:03- [Salesperson] Who's pushing, Wally? Do you see me pushing? I would never push.

5:06- [Wally] Okay, I'm gonna head out. Thanks for your time.

5:10- [Salesperson] Ugh. Lost another one. - [Narrator] Hey, nice work, Wally. So tell me, what's your plan for next time?

5:19- [Wally] I'm gonna be firm on the model of car I wanna to get.

5:21- [Narrator] Great. - [Wally] I'm gonna resist unnecessary add-ons.

5:24- [Narrator] Yeah, you are. - [Wally] I'm gonna use a payment calculator so I can know ahead of time what my monthly payment should look like.

5:30- [Narrator] Atta boy. - [Wally] I won't be swayed by scare tactics and demands to make an immediate decision.

5:35- [Narrator] That's right. - [Wally] Heck, do I even want a new car?

5:38- [Narrator] Now you're cooking. - [Wally] Do I even need a car at all?

5:40- [Narrator] Whoa there, Galaxy Brain, all right.

5:44- [Wally] Which way to the bus stop? - [Narrator] Thata way. Be smart. The negotiation to buy a car is, in a dealership-based model, a battle of wits and wills. Read up on more common tactics you'll face in your car buying journey on our website, khanacademy.org, and look for the Financial Literacy section.

6:03Well, that does it for this episode of Khan Academy Financial Literacy Theater. Thank you and good night. (lively music)