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Getting the Best Deal on a New or Used Car

Buying a new vehicle is one of the most important purchases you'll make in your lifetime and requires a high level of financial commitment. Doing your homework and arming yourself with the right information before you walk into a dealership will prepare you to negotiate the best deal.

Before undertaking this responsibility, think carefully about why you need a vehicle, what type of vehicle you need, and how much you can afford to spend.

To get the best deal on a vehicle, you should first:

• Determine how much you can afford
• Identify what type of vehicle you need, including a few different makes and models
• Carefully research all of the different costs associated with purchasing a vehicle
• Receive multiple price quotes from competing dealerships

Determine how much you can afford

Regardless of what your budget may be, determining how much you can afford is important when purchasing a new or used vehicle. Before making a financial commitment, figure out how much money you can put down, how much you can afford to pay monthly, and how long you would like your loan term to be. For more information on how to determine how much you can afford to spend, click here for our guide.

Identify Your Vehicle Type

Ask yourself some basic questions about your vehicle needs to help identify which make and models may be best for you. First, determine the basics like what size vehicle you need and how you will be using it. Next, ask yourself questions about your driving preferences. Here are some questions to get your research started:

• What is your main reason for needing a vehicle (daily commute, errands, or weekend fun?)
• How many people will be riding in your vehicle on a regular basis?
• How much cargo space do you need?
• Do you prefer automatic or manual transmission?
• How important is fuel economy/miles per gallon to you?
• Do you need four-wheel-drive (4WD) or all-wheel-drive (AWD)?
• Will you ever tow anything with your vehicle, such as a boat or trailer?

After asking yourself these questions, research which make and models offer you the most features and benefits according to your needs. Gather as much information as you can about each vehicle you are interested in and read consumer reviews from people who recently purchased those vehicles. When all else fails, ask a trusted friend or family member about their personal experiences with specific vehicles.

Understand Factory Invoice Prices & Incentives

Before speaking to a salesperson, get familiar with a few terms and concepts that affect pricing and dealership profits.

Factory Invoice Price

The factory invoice price is the amount the dealership paid the manufacturer for a vehicle. It does not necessarily mean how much the vehicle cost the dealership, as dealerships typically receive rebates and other incentives that lower their total cost.

Factory-to-Dealer Incentives

Factory-to-dealer incentives are cash-incentive programs that lower the true cost for dealerships to buy vehicles from manufacturers. Manufacturers offer these incentives to dealerships in effort to help them increase sales for specific models.

Holdback

Holdback is a percentage of the sale of a new vehicle that is paid back to the dealership by the manufacturer, similar to a sales commission. The concept of holdback was designed to supplement dealership sales since they have to pay the manufacturer up front for all the vehicles in their inventory.

Most domestic auto manufacturers offer dealers holdback of 3% of the total MSRP price of the vehicle, and foreign-based manufacturers offer 2%.

Manufacturers Suggested Retail Price (MSRP)

The MSRP or Manufacturers Suggested Retail Price is the recommended sale price, as suggested by the vehicle's manufacturer. Most vehicle manufacturers list the MSRP price for vehicles on their websites.

Take Advantage of Competition – Get Bids from at Least 5 Dealers

Now that you've determined your price range and what types of vehicles you are interested in, its time to start gathering price comparisons. To assure yourself that you're getting the best price, properly take advantage of competition. You'll want to get bids from at least 5 different dealerships, and its best to conduct the bidding process over the phone rather than in person. Getting dealers to bid over the phone saves you time and reduces the stress of meeting face to face.

When you call the dealership, insist that you speak only with a sales manager. Tell each dealer that you expect to see the actual factory invoice price for any vehicle you are interested in. Based on the factory invoice price, get the dealer to offer you a price either above or below invoice.

Let them know that you will be contacting several dealerships in your area, and you aren't going to share what other dealerships are bidding. Ask if there are any factory rebates offered for the model that you are considering, but don't take the rebate into consideration when determining the final price – it should be thought of as an additional discount.

Once you have it narrowed down to one or two dealers, you can begin to negotiate prices. Show them that you are knowledgeable and negotiate from an informed perspective. If they make it seem like they aren't making any money off the sale, remember that dealerships end up paying much less for a vehicle than the factory invoice price. Paying 5% over the dealer's actual cost, not the invoice price, is a fair markup. Here's a simple formula for figuring out the dealership's actual cost:

Dealer's Actual Cost = The Invoice Price – Factory-to-Dealer Incentives – Factory Holdback

Additional Fees, Services, and Dealer Add-Ons

When getting prices from dealers, ask about additional fees, services, and other charges that may be included in the final cost of the vehicle. These include document preparation, advertising, extended warranties, etc.

Some options that you may want won't be factory installed or automatically included in the invoice price. Be sure to ask the dealer about their costs for add-ons for the specific model you are interested in, such as, anti-theft devices, window etching, air conditioning, etc.

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