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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 as of June 1998 was $23,480. That’s why it’s important
to know how to make a smart deal.
How To Buy Your New Car & Save Money
Think about what car model and options you want and how much you’re
willing to spend. 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.
Financing Your New Car
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. Contact 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 annual
percentage rate (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.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 that both you and the dealer have signed and be sure that all
blanks are filled in.Some dealers and lenders may ask you to buy credit
insurance to pay off your loan if you should die or become disabled.
Before you buy credit insurance, consider the cost, and whether it’s
worthwhile. Check your existing policies to avoid duplicating benefits.
Credit insurance is not required by federal law. If your dealer requires
you to buy credit insurance for car financing, it must be included in
the cost of credit. That is, it must be reflected in the APR. Your state
Attorney General also may have requirements about credit insurance.
Check with your state Insurance Commissioner or state consumer
protection agency.
Trading in Your Old Car
Discuss the possibility of a trade-in only after you’ve negotiated the
best possible price for your new car and after you’ve 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.
Considering a Service
Contract
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.Before deciding to purchase a service contract, read
it carefully and consider these questions:
What’s the difference between the coverage under the warranty
and the coverage under the service contract?
What repairs are covered?
Is routine maintenance covered?
Who pays for the labor? The parts?
Who performs the repairs? Can repairs be made elsewhere?
How long does the service contract last?
What are the cancellation and refund policies?
For More Information
The FTC works for the consumer to prevent
fraudulent, deceptive and unfair business practices in the marketplace
and to provide information to help consumers spot, stop and avoid them.
To file a
complaint or to get
free
information on consumer issues, visit
www.ftc.gov or
call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261.
The FTC enters Internet, telemarketing, identity theft and other
fraud-related complaints into
Consumer Sentinel, a secure, online database available to hundreds
of civil and criminal law enforcement agencies in the U.S. and abroad.
