Many people prefer buying a new car over a used one. Some simply like the idea of owning a car that no one else has owned or driven. Some like the assurance that there are no problems with the car because it is new. Others like new car smell and sometimes even go as far as to create a name for their prize possession. Despite whatever the motivation is for buying a car, there are some things to consider.
After you have decided on the make, model and your desired price range you must understand how car dealers set their prices.
When you go to an auto dealership it is common for you to see a sticker price in the window. The sticker price is also referred to as the Manufacturer's Suggested Retail Price (MSRP). That is the dealer's asking price. However, if you negotiate, rarely will you have to pay the MSRP.
How is the MSRP calculated?
Dealers purchase cars from the manufacturer at a wholesale price. This wholesale price is also referred to as the invoice price. Dealers then markup price to include a profit when they sell to a buyer. Many dealers use the invoice price as a sales tool often associated with their "sales price" or "at cost," which gives you the impression that you are getting a substantial deal. However, everything is not what it seems. Often dealers purchase cars for less than the invoice price as they receive money from the manufacturer in the form of dealer holdbacks, factory-to-dealer incentives and dealer rebates. These discounts range from one to seven percent of the car's invoice price. This money is used to compensate dealers for specific costs, such as overhead expenses, insurances and even commissions paid to salespeople.
Additionally, there are other costs you will pay when purchasing a new car. As the buyer, you will pay destination charges, which cover shipping the car from the manufacturer to the dealership. You will pay for amenities, such as a DVD player, alarm system, rims, car wax and other things that were not included in the MSRP. It doesn't stop there; some dealers will charge you for market value adjustments (MVA), documentation fees, dealer preparation charges and other extras. Many of these fees are common with high-end cars.
Never Pay Asking Price
Remember, everything is negotiable. Look over your contract before singing anything and make notations on the things you would like a discount on and then ask for it. Try to never pay the asking price.
The key to getting the best deal is to do your homework before you go to the dealership. Use sites like www.edmunds.com or www.kbb.com to find out what cars are selling for before you go. Be sure to print these ads as well and show them to the dealer. The dealer wants your business; therefore, they will most likely honor the ads you bring them.
Here are some other key tips to save you money:
- Dealers release next year's new models from August to October. Once the new year's model is released, dealers are motivated to get rid of last year's models. This is a good time to buy.
- Never buy a car at the beginning of the month. Try to buy on the last day of the month. Dealers are performance driven and each month they have a sales goal. If at the end of the month they have not hit their sales mark, they are more open to making deals.
- Don't look for a deal if you plan to pay cash. Dealers make more money when they finance a car. To get around the problem, you can finance your purchase and wait for your first months car note and then pay it off at that time.
- Never buy a car on your first shopping day. This is a huge commitment and you don't want to contend with buyer's remorse. Sleep on it a day or two to make sure this is the right move for you. Besides, you may get an even better deal from the dealer. They are used to would-be buyers saying, "I'll be back." Just make it clear to the dealer that it is your intention to come back but you don't like to make rash decisions. Chances are that car will be there tomorrow.
- Be sure to shop around. By not buying on the first day, you can look at other dealers for better cars and more features for less. Or if you like the first car more, you can take your findings back to the original dealer and ask for more favorable terms.
- When finalizing the deal, pay close attention to make sure the dealer does not add on fees when they do your paperwork.