Buying A New Car

Buying a car may be one of the more expensive

purchases you make. Your first decision may be

whether to buy new or used. Either way, it’simportant

to know how to drive a smart deal.

Think about what car model and options you want

and how much you’re willing to spend. Be realistic

and do some research. You’ll be less likely to feel

pressured into making a hasty or expensive decision

at the showroom and more likely to get a better deal.

Consider these suggestions:

•Check publications at a library or bookstore, or

on the Internet, that discuss new car features and

prices. These may provide information on the dealer’s

costs for specific models and options.

•Shop around to get the best possible price by

comparing models and prices in ads and at dealer

showrooms. You also may want to contact car-buying

services and broker-buying services to make

comparisons.

•Plan to negotiate on price. Dealers may be willing

to bargain on their profit margin, often between 10

and 20 percent. Usually, this is the difference

between the manufacturer’s suggested retail price

(MSRP) and the invoice price. Because the price is a

factor in the dealer’s calculations regardless of

whether you pay cash or finance your car – and also

affects your monthly payments – negotiating the price

can save you money.

•Consider ordering your new car if you don’t see

what you want on the dealer’s lot. This may involve a

delay, but cars on the lot may have options you don’t

want – and that can raise the price. However, dealers

often want to sell their current inventory quickly, so

you may be able to negotiate a good deal if an

in-stock car meets your needs.

LEARNING THE TERMS

Negotiations often have a vocabulary of their own.

Here are some terms you may hear when you’re

talking price.

INVOICE PRICE is the manufacturer’s initial charge

to the dealer. This usually is higher than the dealer’s

final cost because dealers receive rebates,

allowances, discounts, and incentive awards.

Generally, the invoice price should include freight

(also known as destination and delivery). If you’re

buying a car based on the invoice price (for example,

“at invoice,” “$100 below invoice,” “two percent

above invoice”), and if freight is already included,

make sure freight isn’t added again to the sales

contract.

BASE PRICE is the cost of the car without options,

but includes standard equipment and factory

warranty. This price is printed on the Monroney

sticker.

MONRONEY STICKER PRICE (MSRP) shows 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, this

label is required by federal law, and may be removed

only by the purchaser.

DEALER STICKER PRICE, usually on a

supplemental sticker, is the Monroney sticker price

plus the suggested retail price of dealer-installed options,

such as additional dealer markup (ADM) or

additional dealer profit (ADP), dealer preparation,

and undercoating.

CAR ADS: READING

BETWEEN THE LINES

Many new car dealers advertise unusually low

interest rates and other special promotions. Ads promising

high trade-in allowances and free or low-cost options

may help you shop, but finding the best deal requires

careful comparisons. Many factors determine

whether a special offer provides genuine savings. The

interest rate, for example, is only part of the car

dealer’s financing package. Terms like the size of the

down payment also affect the total financing cost.

QUESTIONS ABOUT PROMOTIONS

Special promotions include high trade-in

allowances and free or low-cost options. Some

dealers promise to sell the car for a stated amount

over the dealer’s invoice. Asking questions like these

can help you determine whether special promotions

offer genuine value.

•Does the advertised trade-in allowance apply to

all cars, regardless of their condition? Are there any

deductions for high mileage, dents, or rust?

•Does the larger trade-in allowance make the cost

of the new car higher than it would be without the

trade-in? You might be giving back the big trade-in

allowance by paying more for the new car.

•Is the dealer who offers a high trade-in allowance

and free or low-cost options giving you a better price

on the car than another dealer who doesn’t offer

promotions?

•Does the “dealer’s invoice” reflect the actual

amount that the dealer pays the manufacturer? You

can consult consumer or automotive publications for

information about what the dealer pays.

•Does the “dealer’s invoice” include the cost of

options, like rust-proofing or waterproofing, that

already have been added to the car? Is one dealer

charging more for these options than others?

•Does the dealer have cars in stock that don’t have

expensive options? If not, will the dealer order one for

you?

•Are the special offers available if you order a car

instead of buying one off the lot?

•Can you take advantage of all special offers

simultaneously?

FINANCING YOUR NEW

CAR – PAYMENT OPTIONS

You have two choices: pay in full or finance over

time. If you finance, the total cost of the car increases.

That’s because you’re also paying for the cost of

credit, which includes interest and other loan costs.

You’ll also have to consider how much you can put

down, your monthly payment, the length of the loan,

and the APR. Keep in mind that APRs usually are

higher and loan periods generally are shorter on used

cars than on new ones.

If you decide to finance your car, be aware that the

financing obtained by the dealer, even if the dealer

contacts lenders on your behalf, may not be the best

deal you can get. You’re not limited to the financing

options offered by a particular dealer. Before you

commit to a deal, check to see what type of loan you

can arrange with other lenders or your bank or credit

union. Contact the lenders directly. Compare the

financing they offer you with the financing the dealer

offers you. Because offers vary, shop around for the

best deal, comparing the APR and the length of the

loan. When negotiating to finance a car, be wary of

focusing only on the monthly payment. The total

amount you will pay depends on the price of the car

you negotiate, the APR, and the length of the loan.

Sometimes, dealers offer very low financing rates

for specific cars or models, but may not be willing to

negotiate on the price of these cars. To qualify for the

special rates, you may be required to make a large

down payment. With these conditions, you may find

that it’s 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.

Dealers and lenders offer a variety of loan terms

and payment schedules. Shop around, compare

offers, and negotiate the best deal you can. Be

cautious about advertisements offering financing to

first-time buyers or people with bad credit. These

offers often require a big down payment and a high

APR. If you agree to financing that carries a high APR,

you may be taking a big risk. If you decide to sell the

car before the loan expires, the amount you receive

from the sale may be far less than the amount you

need to pay off the loan. If the car is repossessed or

declared a total loss because of an accident, you may

be obligated to pay a considerable amount to repay

the loan even after the proceeds from the sale of the

car or the insurance payment have been deducted. If

your budget is tight, you may want to consider paying

cash for a less expensive used car.

If you decide to finance, make sure you understand

the following aspects of the loan agreement before

you sign any documents:

•The exact price you’re paying for the vehicle;

•The amount you’re financing;

•The finance charge (the dollar amount the credit

will cost you);

•The APR (a measure of the cost of credit,

expressed as a yearly rate);

•The number and amount of payments; and

•The total sales price (the sum of the monthly

payments plus the down payment).

Once you decide which dealer offers the car and

financing you want, read the invoice and the

installment contract carefully. Before you sign a contract

to purchase or finance the car, consider the terms

of the financing and evaluate whether it is affordable.

Buying a Car: Steering Your Way to a Good Deal

 

Check to see that all the terms of the contract reflect the agreement you made

with the dealer. If they don’t, get a written explanation before you sign. Before

you drive off the lot, be sure to have a copy of the contract that both you and the

dealer have signed and be sure that all blanks are filled in. Careful shopping will

help you decide what car, options, and financing are best for you.

For more information, see Buying a New Car at ftc.gov/autos.