A new car is second only to a home as the most expensive purchase many consumers make. According to the National Automobile Dealers Association, the average price of a new car sold in the United States is almost $30,000. It is important to know how to make a smart deal.
Think about what car model and options you want and how much you are willing to spend. Do research so you will be less likely to feel pressured into making a hasty or expensive decision and more likely to get a better deal.
Dealer Sticker Price: Usually on a supplemental sticker—a.k.a. the Monroney sticker price plus the suggested retail price of dealer-installed options (such as additional dealer markup [ADM], additional dealer profit [ADP], dealer preparation, and undercoating)
Invoice Price: The manufacturer’s initial charge to the dealer, usually higher than the dealer’s final cost because dealers receive rebates, allowances, discounts, and incentive awards, and generally includes freight, a.k.a. destination and delivery—if you are buying a car based on the invoice price (examples include “at invoice,” “$100 below invoice,” and “2% above invoice”) and freight is already included, make sure freight is not added again to the sales contract
Base Price: The cost of the car without options but including standard equipment and factory warranty (printed on the Monroney sticker)
Monroney Sticker Price: The base price, the manufacturer’s installed options with the manufacturer’s suggested retail price, the manufacturer’s transportation charge, and the fuel economy (mileage); affixed to the car window; required by federal law; and legally removed only by the purchaser
Read library, bookstore, and Website publications that discuss new car features and prices. These may explain the dealer’s costs for specific models and options.
Shop around for the best possible price by comparing models and prices from ads and dealer showrooms. You may also want to compare car- and broker-buying services.
Negotiate on price. Dealers may be willing to bargain on their profit margin, often between 10% and 20%. Usually, this is the difference between the manufacturer’s suggested retail price (MSRP) and the invoice price. The price is a factor in the dealer’s calculations regardless of whether you pay cash or finance your car, and negotiating affects your monthly payments. In other words, negotiating can save you money.
Think and Act Critically
Sometimes, dealers offer very low financing rates for specific cars or models but may not be willing to negotiate on the price. To qualify for the special rates, you may be required to make a large down payment. With these conditions, you may find that it is sometimes more affordable to pay higher financing charges on a car that is lower in price or to buy a car that requires a smaller down payment.
Before you sign a contract to purchase or finance the car, consider the terms of the financing and evaluate whether it is affordable. Before you drive off the lot, be sure to have a copy of the contract both you and the dealer have signed and that all blanks are filled in.
Discuss the possibility of a trade-in only after you have negotiated the best possible price for your new car and after you have researched the value of your old car. Check the library for reference books or magazines that can tell you how much it is worth. This information may help you get a better price from the dealer. Though it may take longer to sell your car yourself, you generally will get more money than if you trade it in.
Service contracts that you may buy with a new car provide for the repair of certain parts or problems. These contracts are offered by manufacturers, dealers, or independent companies and may or may not provide coverage beyond the manufacturer’s warranty. Remember that a warranty is included in the price of the car while a service contract costs extra.
