Buying A New Car
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 $28,400. That’s why
it’s important to know how to make a smart deal.
Buying Your New Car
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:
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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.
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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.
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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.
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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
manufac-turer’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 manufac-turer’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:
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What’s the
difference between the coverage under the warranty and the coverage
under the service contract?
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What repairs are
covered?
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Is routine
maintenance covered?
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Who pays for the
labor? The parts?
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Who performs the
repairs? Can repairs be made elsewhere?
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How long does the
service contract last?
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What are the
cancellation and refund policies?
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