Buying A New Car
For most consumers, buying a new vehicle is the second most expensive purchase they will make in their lives, second to their homes. Recently, the National Automobile Dealers Association estimated that the average price Americans paid for a new automobile was just under $30,000,which is more than, or a large portion of the average American's annual income. Ideally, a dealership should help you find the right vehicle for you at a fair price. However, since some dealers ignore this responsibility due to maximizing their profit margin, you do NOT want to walk into a dealership cold. If you do you give up too much (negotiating) control to the dealer, which could cost you much money. You may also be pressured into buying the wrong car for your needs. So it pays to first do your homework, shop around, and negotiate with a dealer wisely. This article will help you by giving you detailed information and buying tips that should assist you in making a wise and informed automobile transaction that best fits your needs and means.
Do Your Homework and Developing a Basic Buying Strategy
You wouldn't casually throw $30,000 on a dice roll at a Las Vegas casino would you? Buying a new car should be no different. Invest the time to do your homework up front! Your general buying strategy should include:
- Check the library, Internet, or bookstore to research new cars, their features and suggested invoice prices. These sources will provide information on dealer costs for specific models and options. In addition to pricing, focus on the safety, reliability, and fuel economy of models that you are considering.
- It pays to shop around for clothes and other items. Shopping for a car is no different. Compare models, prices, ads and dealer showrooms. Also, compare these quotes against car-buying services and broker-buyers
- ALWAYS plan to negotiate on price. The only dealer you want to do business with should be willing to negotiate against his or her profit margin, which usually is between 10-20 percent. Normally, this is the difference between the Monroney or manufacturer's suggested retail price (MSRP) and the invoice price. Also, regardless if you pay cash or finance your car, the final price you negotiate will also affect what your monthly payments will be. So negotiating the lowest final price is very important.
- After doing your homework and if you do not see the car with the exact features you wish at a dealer, consider ordering your car. Although you will have to wait you will get what you want instead of buying a car with features that you may or may not wish to buy. On the other hand, a dealer is probably looking to move his merchandise (especially as year end approaches) so being flexible and buying a car off the lot may give you more negotiating power.
The first part of doing your homework is knowing the terms used in negotiation. This way you will understand and appear credible to the dealer.
- Invoice Price—Is the car maker's (manufacturer's) initial charge to the car dealer. Normally, the Invoice price is higher than the dealer's final cost because they receive discounts, rebates, allowances, and incentive awards. This usually includes freight charges (destination and delivery). So if you're buying a car based on invoice price ("at invoice," "$200 below invoice," or "1.5% above invoice,") make sure that the freight charges are NOT added to the sales contract because they most likely are already included in them.
- Base Price—The car price includes standard equipment and factory warranty, less options (make sure you know beforehand what "standard equipment" is included or you may feel you are getting extra equipment for free when it has already been included in the Base Price). This price is listed on the Monroney Sticker.
- Monroney Sticker Price (MSRP)—Lists the Base Price, the manufacturer's installed options along with the manufacturer's suggested retail price, freight charges, and vehicle mileage. This sticker is required by law to be on the vehicle window and can only be removed by the buyer.
- Dealer Sticker Price—Is usually on another sticker and includes the Monroney sticker price and the suggested retail price of dealer installed options. Such options include Additional Dealer Markup (ADM), or Additional Dealer Profit (ADP), dealer preparation and undercoating (see below, Service Contracts, and 10. Reading and Signing Your Paperwork)
Financing Your New Car
When financing your car always shop around and compare Annual Percentage Rates (APR) and the length of the loan from several banks, credit unions, and loan unions directly. Then you can compare your loan against the dealer's. Even if a dealer contacts a lender for you, you may not be getting the best deal. Part of doing your homework means comparing your financing rates between what you can find on your own and what your dealer can offer you. If you have been pre-approved for a loan, you can concentrate on negotiating the best price from the dealer. Don't forget that when buying a car, the total amount you will eventually pay for your car will be a combination of the price of the vehicle that you have negotiated with the dealer, the monthly payments and the length of the loan.
Again you have to compare. Sometimes dealers may offer very low financing rates for certain cars and models. The catch is that they may not be willing to negotiate on the selling price and/or you may have to place a large down payment. If this is the case you need to figure out if it is more affordable to pay a higher APR on a loan to pay off a lower negotiated price or for a car requiring a smaller down payment.
Dealers will probably recommend that you buy credit insurance that is intended to pay off your loan in the event that you die or become disabled before it is paid off. First, consider its cost and whether it is worthwhile to get. Also, check your existing policies to ensure that you are not duplicating the credit insurance. You should know that credit insurance is not required by law and if your dealer requires you to purchase it, it must be reflected in the APR. For more information you can do research through your state Attorney General's office or state insurance commissioner or consumer protection agency.
Whatever financing plan you choose, before you sign anything you must consider the financing terms and that you can afford it over the length of the payments. Also, make sure you have read and possess a copy of the financing contract that both you and your dealer have signed, and that all blanks have been filled in.
Since a dealer will try and offer you a "great" deal on your old car only to regain that amount in the negotiated price of your new car, discuss the possibility of a trade-in AFTER you have negotiated a final price for your new car and after you have researched the fair market value of your old car. You can research your old car's value (based in its age, condition, mileage, and equipment) by checking library reference books, auto pricing web sites, magazines, Used Car Reports, or checking the "Blue Book" value of it (you can try any bank). Focus on the vehicle's wholesale or "trade-in" price, which is what a dealer should offer you. This will give you a better reference point from which to negotiate the trade-in value of your car with the dealer. Although it takes longer to sell, you can try and advertise (Craigslist.com provides free listings) your car and sell it yourself at the fair retail or market price. You will usually sell it for a higher amount than if you trade it in with the dealer. However, going through a dealer immediately frees you of your vehicle and any associated issues with selling it (like an unhappy buyer), once you have completed the transaction for a trade-in with the dealer.
A manufacturer's warranty is included in the car's price. A service contract is extra. A service contract, which you can buy in addition to your new car to address certain repairs or problems, is offered by manufacturers, dealers or independent companies. They may or may not provide coverage beyond the manufacturer's warranty or could duplicate a warranty's coverage. Therefore, carefully read and understand the manufacturer's warranty and a service contract before asking yourself:
- What, if any, is the difference between coverage under the warranty and the service contract?
- How long does the service contract last?
- Who pays for labor and replaced parts?
- What repairs are covered?
- Is routine maintenance covered?
- Exactly who is authorized to perform the repairs?
- What are the cancellation and refund policies?