Video Tips: Terms to Know When Buying a Car
Whenever someone buys a car, there’s always the question: What should I really be paying for this car? No one wants to be taken or feel like they didn’t get the best deal they could have.
Bottom line, it’s important to realize that the manufacturer’s suggested retail price (MSRP) is not always, or even often, the price you can expect to pay for your car. Sometimes you’ll pay more, especially if you’re looking for a popular model. Sometimes you’ll pay something very close to it, and other times, for a variety of reasons, you can wind up paying thousands less than the sticker price.
To help clear up one of the murkiest areas of car-buying, let’s look at the terms involved in understanding car prices.
Invoice price: How much the dealer paid for the car. This number, however, often includes dealer holdback, so the true cost to the dealer may be less than the invoice price.
Dealer holdback: Holdback is a portion of a car’s sales price (typically 2 to 3 percent of either the invoice price or MSRP) that an automaker returns to a dealer, usually on a quarterly basis. It’s a way of boosting the dealer’s cash flow and helps the dealer keep the lights on. Most dealers see holdback as something they’re entitled to. In a general sense everything is negotiable, but this is one item on which dealers seldom budge. And we mean seldom. If a dealer claims he wouldn’t make any money on the deal you propose, you may be able to use your knowledge of dealer holdback to call his bluff.
Customer incentives: Can be low-interest loans or cash-back deals.
Factory-to-dealer incentives: These are less well-known, but can be valuable if you’ve researched your car ahead of time. Dealer incentives are a bit of a gray area, but some online sites like Cars.com offer details on some of those deals. Having that knowledge can make you a better negotiator.
Supply and demand: If you want a car that’s really popular, you’re less likely to get a break on the price. You may even have to sit on a waiting list. On the flip side, if you’re looking for a car and you know there are plenty available, you may be able to cut yourself a great deal. You should know that this isn’t just about models, it’s about trim levels, colors and equipment, too. If you want a color or feature that’s in short supply, you’ll pay more. If you’re flexible about those qualities, you can spend less.
Your car’s trade-in value: This may be an area where a dealer can help you reach the deal you want. Some states tax only the negotiated price minus the trade-in value, which results in a lower taxable amount and considerable savings for the buyer. Others tax the full negotiated price. If you’re not sure which applies to you, ask the dealer — they’re certain to know and should have no problem providing this information.
Whatever the variable, it’s important to shop around. By shopping multiple dealerships during an incentives period, you’re more likely to get a better deal.
Additionally, don’t forget to factor in these costs:
Destination charge: This is a non-negotiable fee set by the manufacturer that covers the cost of shipping the vehicle to the dealership. It’s a fixed number, whether your dealer is a mile or a whole continent away from the factory.
Taxes: You can’t avoid these, and they represent a good chunk of change on a purchase this big. As mentioned, in some states the value of a trade-in is subtracted from the negotiated purchase price, which lowers the tax burden. Other states tax the unadjusted transaction price.
License and title fees: The method and cost varies from state to state, but these fees are unavoidable.
Insurance: This is another unavoidable expense that adds up. Don’t leave it out of your affordability calculations.
There is, on car sites like Cars.com and others, another price to consider. Drawing upon diverse data sources, the Cars.com Smart Target Price is calculated by evaluating a car’s invoice price, MSRP, demand and availability, then applying a formula to the data and generating a unique vehicle price that reflects what car shoppers are really paying to get their new car. The Smart Target Price should give you a place to start your negotiations with the dealer and help you understand what others are paying for the car you want.
Remember, too, that there isn’t a Smart Target Price for every new car, and the formula doesn’t take into account incentives, rebates and dealer-added options.
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Thanks for the advice, they are realy helpfull for an average person loking to buy new car this year
Posted by: Car Dealer Finder | Jan 21, 2008 10:16:23 AM