New Car Buyers Guide

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 2005 was $28,400. That’s why it’s important to know how to make a smart deal.

Buying Your New Car

Consider these suggestions:

• Decide if you want to lease or buy your car. Before you begin to lease a vehicle, it is important that you know the pros and cons of leasing a car. To help you better understand the differences between purchasing and leasing, we have compiled several comparison charts

• 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, negotiating the price can save you money (and it also affects your monthly payments).

• 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. Try our vehicle quote request system to help you find a car with all of the options you need.

Learning the Terms

• 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 a factory warranty. This price is printed on the Monroney sticker.


• Monroney Sticker Price shows the base price, the manufacturer’s installed options with the manufacturer’s suggested retail price (MSRP), 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

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. Federal law does not require credit insurance. 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

Considering a Service Contract

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?