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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:
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
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
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
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
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.
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
Negotiations often have a vocabulary of their own. Here are
some terms you may hear when you’re talking price.
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.
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.
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
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
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.
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?
repairs are covered?
routine maintenance covered?
pays for the labor? The parts?
performs the repairs? Can repairs be made elsewhere?
long does the service contract last?
are the cancellation and refund policies?
To File a Complaint
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
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.
(Source: Federal Trade Commission)
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