First Car Guide for First Time Car Buyers

What to Pay for New Cars

All new cars have a window sticker that displays the manufacturer's suggested retail price (MSRP). It may also include destination charges, dealer-installed option prices, and other miscellaneous charges. The total of these charges is the price you would pay for that vehicle, less sales tax, without any discounts or rebates.

Price can be negotiated for most vehicles. Unless the vehicle is a hot seller and in short demand, it's usually possible to get dealers to discount the MSRP. But, how much? What's the best price I can expect?

Here's your strategy for negotiating price.

1. Get online price quotes

Use Internet car buying/pricing services to get price quotes. The quotes are free and you are not obligated in any way to accept them. We recommend getting quotes from multiple services so that you'll have a number of prices to compare. The best source for free quotes are InvoiceDealers, Edmunds, and Yahoo Auto.

The prices come from dealers in your area. Even though the prices are discounted, you may be able to do better if you are a good negotiator.

2. Learn about rebates and incentives

Go to Cars.com and click on the "Current Rebates and Hot Deals" link. You'll be show the current incentive programs, if any, for the vehicle you're interested in. Any price quotes you receive should already include any Customer Cash-Back Incentives, but you should verify this to make sure. If there are Dealer Cash-Back Incentives, dealers are not required to share that money with customers, but many do.

3. Get dealer invoice prices

Invoice price is the wholesale price that a dealer is charged for a vehicle by the manufacturer. Dealer make their profit by selling at a higher price. Essentially, the best deal you should expect to get on a car purchase is something above invoice price, allowing the dealer to make some profit.

Get invoice prices for any vehicle make and model at Edmunds.com. It's free.  Also check Edmunds' TMV (True Market Value) price for your vehicle. It's their best estimate of how much other people are actually paying for that car.

It is possible under certain conditions that you may be able to buy for less than invoice price. How so?

Dealers get certain bonuses and holdback fees from the manufacturer when vehicles are sold, especially when sales goals are reached. This reduces the actual cost of a vehicle to the dealer. Furthermore, any factory-to-dealer cash-back rebates (mentioned above) also serve to reduce cost. If a dealer is willing to share some or all of these cost reductions with customers, selling prices can actually fall below invoice price.

There is no good way to know exactly what bonuses, holdbacks, and rebates that a dealer is receiving in any particular situation. Therefore, it is difficult to know whether you should factor them into your negotiated price goals. Realistically, unless you know about specific factory-to-dealer rebates, you should base your goals on invoice price plus reasonable dealer profit.

How much over invoice?

Here's a good rule of thumb: On cars whose MSRP is $20,000 or less, offer $500 over invoice. For cars with MSRP of $20,000 to $30,000, offer $1000 over invoice. And for cars with MSRP over $30,000, offer $2000 over invoice.

These are only suggestions. If the car you want is in short suppy due to heavy demain, you might not be able to get much of a discount at all. If it is a slow seller at the end of the model year when a dealer has plenty of inventory, you may be able to do better than invoice price, assuming some manufacturer incentives. 

What to Pay for Used Cars

The best way to determine a fair price for a used car is to check with one or more used-car pricing guides such as Kelley Blue Book (www.kbb.com), NADA Guides (www.nadaguides.com), Edmunds (www.edmunds.com). Sellers generally use these guides to set their asking prices.

Don't fall into the trap of negotiating a price down, only to find out you still paid too much. For example, a dealer could set an asking price of $8000 on a car that worth only $6000. When a buyer comes in and talks the price down to $7000, he may think he's gotten a bargain. However, the dealer made $1000 more than he should on the sale.

Dealer prices are generally higher than if a car is purchased from an individual.

Prices are almost always negotiable. Asking prices are generally about 10%-20% higher than sellers are willing to sell for. Dealers make more profit per car on used cars than on brand new cars. Dealers and other sellers expect buyers to negotiate.

If a car is being advertised for an unusually low price, it's probably for a reason. The car may have problems that the seller may not mention unless you ask. Beware of bargain prices unless you understand the reason.

Used car prices can also vary by area of the country. Convertibles, for example, are more expensive in sunny Florida than in chilly Vermont.

Use Kelley Blue Book and NADA Guides to check a used car you think you want to buy. Then have a mechanic check it over for problems. Any problems found, if you still want to buy the car, should be used to negotiate the selling price down further. Also get a CarFax (www.carfax.com) vehicle history report to find out if the car has ever been seriously wrecked or totaled.

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