Buying a new car is usually the second most expensive
purchase many consumers make, after the purchase of their home.
This guide, which includes a checklist and a worksheet,
is intended to help give you the information you need to make a
smart deal on a new car.
Buying Your New Car
Before you step into a dealer's showroom, it helps to know
what car model and options you want and how much you are
willing to spend. That way, you are less likely to feel
pressured into making a hasty or expensive decision and more
likely to get a better deal. To help you shop, you may want to
consider the following suggestions:
* Check publications at a library or bookstore that discuss
new car features and prices. These may provide information
on the dealer's costs for specific models and options.
* Shop around to get the best possible price by comparing
models and prices at dealer showrooms. You also may want
to contact car buying services and broker buying services
and make comparisons there.
* Plan to negotiate on price. Dealers may be willing to
bargain on their profit margin, which is generally between
15 to 20 percent. This is usually the difference between
the manufacturer's suggested retail price and the invoice
price. To help you do this, refer to the worksheet listed
at the end of this brochure.
* Consider ordering your new car if you do not see the car
you want on the dealer's lot. This usually involves a
delay, but cars on the lot frequently have options you do
not want -- which add considerably to the cost.
Learning the Terms
To give you a better sense of the negotiating room you
have when buying your car, it helps to understand the following
terms, listed here in order of increasing price:
INVOICE PRICE is the manufacturer's initial charge to the
dealer. This is usually higher than the dealer's final cost
because dealers often receive rebates, allowances, discounts,
and incentive awards. The invoice price always includes freight
(also known as destination and delivery). If you are buying a
car based on the invoice price (for example, "at invoice,"
"$100 below invoice" "two percent above invoice") be sure
freight is not added to the sales contract.
BASE PRICE is the cost of the car without options, but
includes standard equipment, factory warranty, and freight.
This price is printed on the Monroney sticker (see below).
MONRONEY STICKER PRICE, which appears on a label affixed
to the car window and is required by federal law, shows the
base price, the manufacturer's installed options with the
manufacturer's suggested retail price, the manufacturer's
transportation charge, and the fuel economy (mileage). The
label may not be removed by anyone other than the purchaser.
DEALER STICKER PRICE, usually on a supplemental sticker,
is the Monroney sticker price plus the suggested retail price
of dealer-installed options, such as additional dealer mark-up
(ADM) of additional dealer profit (ADP), dealer preparation,
Financing Your New Car
If you decide to finance your car, you have the option of
checking the dealer's rate against banks, credit unions,
savings and loans institutions, and other loan companies.
Because interest rates vary, shop around for the best deal and
compare the annual percentage rates (APR).
Sometimes, dealers offer very low financing rates for
specific cars or models, but may not be willing to negotiate on
the price of these cars. In addition, they may require you to
make a large downpayment to qualify for these special interest
rates. With these conditions, you may find that it is sometimes
more affordable to pay higher financing charges on a car that
is lower in price or to purchase a car that requires a smaller
Some dealers and lenders may ask you to buy credit
insurance, which pays off your loan if you should die or become
disabled. Before you add this cost, you may want to consider
the benefits available from existing policies you may have.
Remember, buying credit insurance is not required for a loan.
Trading in Your Old Car
After getting your new car for the best possible price,
only then discuss the possibility of a trade-in. First,
however, find out the value of your old car. You may want to
check the library for references and periodicals that can tell
you how much your car is worth. This information may help you
get a better overall price from the dealer. Remember, too, that
though it may take longer, you generally will get more money by
selling the car yourself.
Considering a Service Contract
Service contracts that you may buy with a new car provide
for the repair of certain specified parts or problems. These
contracts are offered by manufacturers, dealers, or independent
companies and usually initially run concurrently with the
manufacturer's warranty. Remember: a warranty is included in
the price of the car; a service contract costs extra.
Before deciding to purchase a service contract, read it
carefully and consider some of the following questions:
* What is the difference between the coverage under the
warranty and the coverage under the service contract?
* What repairs are covered?
* Who pays for the labor? The parts?
* Who performs the repairs? Can repairs be made elsewhere?
* How long does the service contract last?
* What is the cancellation and refund policy?
For Further Information
In addition to checking publications about new car
features and prices when buying a car, you may find it helpful
to read other Federal Trade Commission brochures. These
include: "Car Ads: Low Interest Loans and Other Offers,"
"Service Contracts," "Warranties," "Buying a Used Car," and "A
Consumer Guide to Vehicle Leasing." For a free copy write:
Public Reference, Federal Trade Commission, Washington, D.C.
20580. For further information, you may want to write to:
Division of Marketing Practices, Federal Trade Commission,
Washington, D.C. 20580. Although the FTC generally does not
intervene in individual consumer disputes, it can take action
if there. is evidence of a pattern of deceptive or unfair
Checklist for Buying a New Car
You are likely to get a better deal on a car if you know
beforehand exactly what you are looking for and what you are
willing to spend. Therefore, before signing a sales contract
with a car dealer, you may want to:
* Decide which car model and specific options you want.
* Find out the invoice price (the lowest price)of the model
and each option you want.
* Decide how much you are willing to pay the dealer, if
anything, above the invoice price.
* Compare final sales prices with other dealers and buying
* Compare financing costs from various sources, such as
credit unions and savings and loans institutions, with
those of car dealers.
* Find out the value of your old car, independent of a
dealer's trade-in offer.
* Decide if you need an optional service contract or credit
Worksheet for Buying a New Car
To help you negotiate the price of your next new car, you
may want to use this worksheet to establish your bargaining
room before you talk with a dealer.
Base Price Invoice Price* Retail Price
Transmission: ______________ ____________
Automatic ______________ ____________
Stick ______________ ____________
Air Conditioning ______________ ____________
Engine: ______________ ____________
Size ______________ ____________
Diesel ______________ ____________
Sound System: ______________ ____________
AM-FM ______________ ____________
AM-FM Cassette ______________ ____________
Power Brakes ______________ ____________
Power Steering ______________ ____________
Power Locks ______________ ____________
Power Seats ______________ ____________
Rear Window Wiper/Washer ______________ ____________
Rear Window Defogger ______________ ____________
Luggage Rack ______________ ____________
Tires: ______________ ____________
Full-Size Spare ______________ ____________
Steel Belted Radials ______________ ____________
Mirrors: ______________ ____________
Dual ______________ ____________
Remote ______________ ____________
Passenger Visor ______________ ____________
Other: ______________ ____________
* The invoice price may be obtained by looking at the
dealer's invoice or by reviewing new car publications.
6th & Pennsylvania Avenue, N.W.
Washington, D.C. 20580
TDD (202) 326-2502
FTC Regional Offices
1718 Peachtree Street, N.W., Suite 1000
Atlanta, Georgia 30367
10 Causeway Street, Suite 1184
Boston, Massachusetts 02222-1073
55 East Monroe Street, Suite 1437
Chicago, Illinois 60603
668 Euclid Avenue, Suite 520-A
Cleveland, Ohio 44 114
100 N. Central Expressway, Suite 500
Dallas, Texas 75201
1405 Curtis Street, Suite 2900
Denver, Colorado 80202-2393
11000 Wilshire Boulevard, Suite 13209
Los Angeles, California 90024
150 William Street, Suite 1300
New York, New York 10038
901 Market Street, Suite 570
San Francisco, California 94103
2806 Federal Bldg., 915 Second Ave.
Seattle, Washington 98174