Here’s how to determine a fair price for brand new cars (see below for used-car pricing).

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 price quotes. The quotes are free and you are not obligated in any way to accept them. We recommend you get quotes from multiple services so that you’ll have a number of prices to compare. The best sources for free quotes are:

• TrueCar
• InvoiceDealers
• Edmunds.com

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 low price 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 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 (Marketing Support, mentioned above) also serve to reduce cost. If a dealer is willing to share some or all of these cost reductions with customers, your purchase price can actually fall below invoice price.

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. This assumes the dealer is getting no rebates or marketing support from his manufacturer.

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 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 there are manufacturer incentives.

What to Pay for Used Cars — What’s a Good Price?

Used cars can vary in price depending on year model, mileage, and condition.

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.

Private sellers often price their cars too high, allowing some room to negotiate with potential buyers.

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.  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.

Prices are almost always negotiable. Dealers and individual sellers actually expect buyers to negotiate and 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.

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.

Beware of buying used cars on automobile clasified ad sites such as Craigslist and Autotrader, or even from newspaper classifieds web sites. Read about a common car sales scam in this article.

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Let’s say you see a nice used car that you like on a dealer’s lot that is priced at $14,000. Is it a good price? Can I talk the dealer down to, say, $12,000? How much discount can I expect to get?

These are all common questions when shopping for used cars, especially if it’s your first car.

Let’s look at the answers.

Used car prices can vary greatly – even for the same make, model, year, and condition. Prices tend to follow the laws of supply and demand. Large gas-guzzling SUVs are cheaper in times of high gas prices. Convertibles are more expensive in sunny Florida than in cold North Dakota. Used car prices are cheaper when dealers have too many on their lots.

Dealers are experts at knowing local car-buying customers, what they want, and what they are willing to pay. They set their used car prices accordingly. However, dealers make more profit on used cars than on brand new cars. This means there is a lot of “wiggle room” in used car prices – a relatively large difference between what the dealer has invested in his cars and the prices he sets for those cars. Unfortunately, there is no way for us as consumers to know what a dealer has paid for his used cars.

Check prices to know what is fair

The first step to getting a fair price on a used car is to find out how much the car is worth. Is the dealer’s asking price fair or not? If not, then it is time for some negotiation.

Some newcomers to car buying assume that there is some kind of “standard” price for used cars. It is not true. However, there are used-car pricing guides, such as Kelley Blue Book and NADA Guides, that compile data from a variety of sources to publish their version of suggested prices, based on make, model, year, equipment, mileage, condition, and region of the country.

These guides often differ significantly in prices for the same vehicle, same mileage, same everything. Confused car buyers often ask, “Which is right?” or “Which is more accurate?”  Neither is more right or more accurate. However, the guides serve as a good benchmark for determining a fair price for a car you may be considering to buy. For example, if a dealer is asking $14,000 for a car that the guides show as only being worth $10,000, he’s asking too much and it’s time to negotiate a fairer price.

If you don’t check prices

We’ve seen questions from car buyers who ask something like, “How much can I talk a dealer down on this $14,000 car?”  The answer to the question is really another question. It is not so much how much you can talk him down, as it is how much is the car worth?

For example, a dealer may put a $14,000 price on a car that is worth only $10,000. He hopes that he’ll get a customer who hasn’t done her price research and who will “talk him down” to $12,000. The customer is happy because she thinks she got a $2000 price discount, and the dealer is happy because he sold the car for $2000 more than it was worth.

Asking prices are not selling prices

Nearly all used cars are sold for a price that is less than the original “asking” price. Dealers post asking prices on used car window stickers. Individuals selling used cars advertise them with asking prices. Dealer asking prices may be 20% or more higher than selling prices. Individuals usually price their cars about 10% higher than the price they are willing to accept.

Negotiate based on car’s condition

If you find a car you like and the price seems fair for a car in good to excellent condition, make sure you get a mechanic’s inspection and have the mechanic document any problems he finds. Assuming the problems are not serious enough to stop you from buying the car, use the mechanic’s report to negotiate for a lower price.

Also get a Carfax vehicle history report and do the same thing. If the car has been in an accident, even if the repairs have been done expertly, use the information to try to get a better price.

Where to buy

Used-car dealers are an obvious source of  used cars but it takes time to visit and find out which ones have cars you might be interested in. One way to save time is use an online site such as UsedCars.com that lets you search for discounted cars from dealers in your area.

If you prefer to buy from a private seller individual instead of a dealer, we suggest you look at the eBay Motors web site for a list of .

If you have less-than-perfect credit, your car buying choices may be limited to dealers, such as Drivetime.com, who specialize is dealing with people with credit problems. They have dealerships around the country.

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