Feature Articles: Financial Information & Tips
Buying a new car
Brenda Procter, state specialist and instructor, Personal Financial Planning, University of Missouri Extension
It can be scary to buy a new car, especially if it is your first time. There is a lot to think about, so do plenty of research. Decide what car model and options you want, and how much you can spend. You’ll feel less pressured into making an expensive decision at the showroom and more likely to get a better deal.
Consider these suggestions:
- Check publications at a library, bookstore or the Internet that describe new car features and prices. You can find 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. If you can, go to three different dealers.
- Plan to negotiate on price. Dealers sometimes give up some of their profit to make a sale — sometimes as much as 10 to 20 percent. This is usually the difference between the manufacturer’s suggested retail price (MSRP) and the invoice price that the dealer paid to the manufacturer. Make sure you reduce the price you offer by any cash-back offers the dealer has.
- You can order a new car if you don’t see what you want on the dealer’s lot. This may take more time, but cars on the lot may have options you don’t want and that can raise the price. Dealers 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 – what the manufacturer charged the dealer. It is often higher than the dealer’s real cost because dealers get rebates, allowances, discounts and incentive awards from the manufacturer. The invoice price usually includes freight (also known as destination and delivery). If you’re buying a car based on the invoice price (e.g., at invoice, $100 below invoice, 2 percent above invoice) and the freight is already included, make sure the dealer doesn’t add it again to the sales contract.
- Base price – the cost of the car without added options. This includes standard equipment and factory warranty. The price is printed on the Monroney sticker.
- Monroney sticker price – shows the base price, the manufacturer-installed options with the manufacturer’s suggested retail price, the manufacturer’s transportation charge and the fuel economy (mileage). Federal law requires that this label may only be removed by the buyer of the vehicle.
- Dealer sticker price – usually on an extra sticker, is the Monroney sticker price plus the suggested retail price of dealer-installed options. This price is negotiable and may include additional dealer markup (ADM) or additional dealer profit (ADP), dealer preparation and undercoating.
If you decide to finance your car, be aware that dealer financing, even if the dealer contacts lenders for you, may not be the best deal you can get. Contact lenders yourself and compare the financing they offer with what the dealer offers.
Offers vary, so shop around for the best deal, comparing the annual percentage rate (APR) of interest and the length of the loan. Try not to focus 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.
Dealers sometimes offer very low financing rates for specific cars or models, but won’t negotiate on their price. You may have to make a large down payment to qualify. It might be 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. Ask lenders to tell you the total amount you will have to pay before you own the car.
Before you sign a contract to buy or finance the car, consider all the terms of the financing and be sure you can afford it. Before you drive off the lot, get a copy of the contract that both you and the dealer have signed and make 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. It is rarely worthwhile. Check your existing policies to avoid duplicating benefits. Credit insurance is not required by federal law and it has to be reflected in the APR if they make you buy it. Contact the Missouri attorney general’s office by calling 800-392-8222 to learn about credit insurance requirements and regulations.
Trading in your old car
Discuss the possibility of a trade-in only after you’ve negotiated the best possible price and financing 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. It might take longer to sell your car yourself, but you generally get more money for it than if you trade it in.
Service contracts that you may buy on a new car provide for the repair of certain parts or problems. Manufacturers, dealers or independent companies offer these contracts and they may or may not provide more coverage than 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, consider these questions:
- What’s the difference between the coverage under the warranty and the coverage under the extra service contract? What repairs are covered?
- Is routine maintenance covered?
- Who pays for the labor and parts?
- Who performs the repairs? Can repairs be made somewhere else?
- How long does the service contract last?
- What are the cancellation and refund policies?
The Missouri attorney general’s office has an excellent publication called All About Autos. It is available online at http://ago.mo.gov/publications/allaboutautos.pdf. Call the Missouri attorney general’s consumer protection hot line at 800-392-8222 to request a copy.
To file a complaint
The Federal Trade Commission (FTC) works for the consumer to prevent fraud, deceit and unfair business practices in the marketplace, and provides information to help consumers spot, stop and avoid them. To file a complaint or to get free information on consumer issues, visit http://ftc.gov/ or call toll-free, 877-FTC-HELP (877- 382-4357); TTY: 866-653-4261. The FTC enters consumer complaints into a secure online database used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.
Adapted from Buying A New Car, (Federal Trade Commission, April 2006), http://www.ftc.gov/bcp/edu/pubs/consumer/autos/aut11.shtm (accessed November 10, 2008).
Last update: Thursday, March 11, 2010