What to Pay for a Car — What’s a Good Price?
Here’s how to determine a fair price for brand new cars (see below for used-car pricing).
What to Pay For a New Car
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.
All these charges but destination charge can be negotiated. Manaufacturers charge dealers this fee for vehicle delivery, and dealers simply pass it along to customers without markup. It cannot be eliminated from the cost of a car.
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 dealer price offers. The services are free and you are not obligated in any way to accept them. We recommend you use multiple services so that you’ll have a number of prices to compare. The best sources for free quotes are:
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
Visit Best Car Deals for information and advice about current car incentives, rebates, lease deals, and low interest loans, including 0% APR loan deals.
Also go back to Edmunds.com (see link above)and click on the New Cars section “Rebates and Incentives” link. You’ll be shown 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 Marketing Support 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. Dealers make their profit by selling at a margin over invoice price. Essentially, the best deal you should expect to get on a car purchase is something above invoice price, but less than MSRP, allowing the dealer to make some profit, which is needed to stay in business.
A new online service, TrueCar, provides dealer invoice prices for any car make and model but, more sigificantly, they show you the best price that other people are paying for those cars. They even give you a savings guarantee that you can take to dealers in your area. Give them a try. It’s a free service.
Some of the prices you may get when you ask for price quotes could actually be less than dealer invoice price.
How can a dealer’s price offer be below his invoice price?
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 and direct-to-customer rebates and bonuses also serve to reduce cost. If a dealer is willing to share some or all of his manufacturer-provided money and offer a price discount of his own, your purchase price can easily fall below invoice price.
How much over invoice if no manufacturer help?
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. This assumes the dealer is getting no rebates or marketing support from his manufacturer, and that there are no direct-to-customer rebates.
These are only suggestions. If the car you want is in short supply due to heavy demand, you might not be able to get much of a price reduction 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 there are manufacturer incentives.
What to Pay for a Used Car — What’s a Good Price?
Used cars vary in price depending on year, model, style, mileage, equipment, and condition. While it’s possible to get a good car for as little as $1000, the odds are not good and would require a lot of looking to find one. The higher the price, the better the car you’ll get. It’s much easier to find good cars in the $5000-$8000 range. Some great cars that are only 5-6 years old can be found for 60% or more off the original sticker price.
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). In fact, if you have a price in mind that you want to pay for a car, use these guides to tell you which cars (makes, models, years) fit your budget.
Dealers and priviate sellers often mark up asking prices high by 10%-20%, allowing room to negotiate with potential buyers. However, don’t assume that a sellers asking price is fair, even after deducting his “markup.”
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 — and the buyer paid $1000 too much.
Dealer prices are generally higher than if a car is purchased from an individual — because dealers have to make a good profit to stay in business. However, UsedCars.com lists cars at local dealers at already-discounted prices. You can get free no-obligation price quotes online, which saves a lot of time when price shopping.
If you prefer to buy your car from an individual private seller, you can find hundreds for sale on the eBay Motors web site, as well as on Craiglist and Autotrader. Beware of buying a car that you can’t see, can’t drive, and can’t inspect. Always try to buy local cars. It’s easier to negotiate better prices when you can meet a seller face-to-face.
Prices are almost always negotiable. Dealers and individual sellers actually expect buyers to negotiate and will set prices accordingly. Asking prices are generally about 10%-20% higher than sellers are willing to sell for. Dealers typically make more profit per-car on used cars than on brand new cars.
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. Low prices from private sellers on web sites such as Craigslist and Autotrader may indicate a common car scam.
Used car prices can also vary by area of the country. Convertibles, for example, are more expensive in sunny Florida than in chilly Vermont. Four-wheel-drive vehicles are in greater demand, and more expensive, in states with bad winters. Small compact cars are popular in college towns. Trucks are more in-demand in rural areas.
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.