Buying
A New Car
March 1999
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?
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