Buying a new car is usually the second most expensive purchase many consumers make next to the purchase of their home. This guide is intended to help give you the information needed 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. This in turn allows you to feel less pressured into making a hasty or expensive decisions and will help drive a better deal.

To help you shop you may want to consider the following suggestions:

Learning the Terms of The Trade

To give you a better sense of the negotiating room you have when buying your car, it helps to understand some common terms. The terms are listed below in order of increasing value.

INVOICE PRICE
This 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
This 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
This is the printout which appears on a label affixed to the car window and is required by federal law. This sticker 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
This is 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, and undercoating.

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.

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 down payment 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 down payment. For these reasons we suggest you use LendingTree's loan rate comparison application.

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:

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: