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
as of June 1998 was $23,480. 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:
- 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?
Worksheet for Buying a New
Car
Before you negotiate the price
of your next new car, use this worksheet to establish
the bargaining room.
Model __________________________
Base Price__________________________
Options: |
Invoice Price* |
Sticker Price |
Transmission: Automatic___ Manual___ |
|
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Air Conditioning |
|
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Engine: Size ____________________
|
|
|
Audio System: AM-FM___w/cassette___w/CD___
|
|
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Brakes: Antilock___ Power-assisted___
|
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Power Locks
|
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Seats: Power___ Heated___ Leather___
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Rear Window: Wiper___ Defroster___
|
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Wheels and Tires:
Alloy Wheels
All Season
Tires
|
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|
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Mirrors and Lights:
Illuminated
Dual Vanity Mirrors
Map Lights
Exterior Power
Mirrors
|
|
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Alarm System
|
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Cellular Telephone
|
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Remote Keyless Entry
|
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Sunroof |
|
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Other: ____________________________
_________________________________
_________________________________
_________________________________ |
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Totals: |
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*You can get the invoice price by looking at
the dealer's invoice or reviewing car publications. |
For More Information
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