FTC FACTSfor Consumers

AUTOMOBILES

1-877-FTC-HELP

FEDERAL TRADE COMMISSION FOR THE CONSUMER

www.ftc.gov

 Buying A New Car

new car is second only to a home as the most expensive purchase

many consumers make. According to the National Automobile

Dealers Association, the average price of a new car sold in the

United States is $28,400. That’s why it’s important to know how

to make a smart deal.

Buying Your New Car

Think about what car model and options you want and how much you’re willing

to spend. Do some research. You’ll be less likely to feel pressured into making

a hasty or expensive decision at the showroom and more likely to get a better

deal.

Consider these suggestions:

● Check publications at a library or bookstore, or on the Internet, 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

in ads and at dealer showrooms. You also may want to contact car-buying

services and broker-buying services to make comparisons.

● Plan to negotiate on price. Dealers may be willing to bargain on their profit

margin, often between 10 and 20 percent. Usually, this is the difference

between the manufacturer’s suggested retail price (MSRP) and the invoice

price.

 Because the price is a factor in the dealer’s calculations regardless of

whether you pay cash or finance your car — and also affects your monthly

payments — negotiating the price can save you money.

A
Facts for Consumers

● Consider ordering your new car if you

don’t see what you want on the dealer’s lot.

This may involve a delay, but cars on the

lot may have options you don’t want — and

that can raise the price. However, dealers

often want to sell their current inventory

quickly, so you may be able to negotiate a

good deal if an in-stock car meets your

needs.

Learning the Terms

Negotiations often have a vocabulary of their

own. Here are some terms you may hear when

you’re talking price.

● Invoice Price is the manufacturer’s initial

charge to the dealer. This usually is higher

than the dealer’s final cost because dealers

receive rebates, allowances, discounts, and

incentive awards. Generally, the invoice

price should include freight (also known as

destination and delivery). If you’re buying a

car based on the invoice price (for example,

“at invoice,” “$100 below invoice,” “two

percent above invoice”) and if freight is

already included, make sure freight isn’t

added again to the sales contract.

● Base Price is the cost of the car without

options, but includes standard equipment

and factory warranty. This price is printed

on the Monroney sticker.

● Monroney Sticker Price (MSRP) shows

the base price, the manufacturer’s installed

options with the manufacturer’s suggested

retail price, the manufac-turer’s transportation charge, and the fuel economy (mileage). Affixed to the car window, this label

is required by federal law, and may be

removed only by 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 markup (ADM) or additional dealer

profit (ADP), dealer preparation, and

undercoating.

Financing Your New Car

If you decide to finance your car, be aware that

the financing obtained by the dealer, even if the

dealer contacts lenders on your behalf, may not

be the best deal you can get. Contact lenders

directly. Compare the financing they offer you

with the financing the dealer offers you.

Because offers vary, shop around for the best

deal, comparing the annual percentage rate

(APR) and the length of the loan. When

negotiating to finance a car, be wary of

focusing only on the monthly payment. The

total amount you will pay depends on the price

of the car you negotiate, the APR, and the

length of the loan.

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. To qualify for the special rates, you may

be required to make a large down payment.

With these conditions, you may find that it’s

sometimes more affordable to pay higher

financing charges on a car that is lower in price

or to buy a car that requires a smaller down

payment.

Before you sign a contract to purchase or

finance the car, consider the terms of the

financing and evaluate whether it is affordable.

Before you drive off the lot, be sure to have a

copy of the contract that both you and the

dealer have signed and be sure that all blanks

are filled in.

Some dealers and lenders may ask you to buy

credit insurance to pay off your loan if you

should die or become disabled. Before you buy

credit insurance, consider the cost, and whether

it’s worthwhile. Check your existing policies to

avoid duplicating benefits. Credit insurance is

not required by federal law. If your dealer

requires you to buy credit insurance for car

financing, it must be included in the cost of

credit. That is, it must be reflected in the APR.
Facts for Consumers

Worksheet for Buying a New Car

Before you negotiate the price of your next new car, use this worksheet to establish the

bargaining room.

Options:

Transmission: Automatic ___ Manual ___ __________ ____________

Air Conditioning ............................... __________ ____________

Engine: Size ________ ...................... __________ ____________

Audio System:

AM-FM ___w/cassette ___ w/CD___ __________ ____________

Brakes: Antilock ___ Power-assisted ___ __________ ____________

Power Locks .................................... __________ ____________

Seats: Power ___ Heated ___ Leather ___ __________ ____________

Rear Window: Wiper ___ Defroster _____

Wheels and Tires:

Alloy Wheels ............................. __________ ____________

All Season Tires ......................... __________ ____________

Mirrors and Lights:

Illuminated Dual Vanity Mirrors ..... __________ ____________

Map Lights ............................... __________ ____________

Exterior Power Mirrors ................ __________ ____________

Alarm System ................................... __________ ____________

Cellular Telephone ............................. __________ ____________

Remote Keyless Entry ......................... __________ ____________

Sunroof........................................... __________ ____________

Other: _____________________________ __________ ____________

__________________________________ __________ ____________

__________________________________ __________ ____________

__________________________________ __________ ____________

Totals ............................................ __________ ____________

Base Price_______________________

*You can get the invoice price by looking at the dealer’s invoice or reviewing car publications.

Model____________________________

 Invoice Price* Sticker Price

Your state Attorney General also may have

requirements about credit insurance. Check

with your state Insurance Commissioner or

state consumer protection agency.

Trading in Your Old Car

Discuss the possibility of a trade-in only after

you’ve negotiated the best possible price for

your new car and after you’ve researched the

value of your old car. Check the library for

reference books or magazines that can tell you

how much it is worth. This information may

help you get a better price from the dealer.

Though it may take longer to sell your car

yourself, you generally will get more money

than if you trade it in.
Federal Trade Commission

Bureau of Consumer Protection

Office of Consumer and Business Education

April 2006

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Facts for Consumers

Considering a Service Contract

Service contracts that you may buy with a new

car provide for the repair of certain parts or

problems. These contracts are offered by

manufacturers, dealers, or independent

companies and may or may not provide

coverage beyond the manufac-turer’s warranty.

Remember that a warranty is included in the

price of the car while a service contract costs

extra.

Before deciding to purchase a service contract,

read it carefully and consider these questions:

● What’s the difference between the coverage

under the warranty and the coverage under

the service contract?

● What repairs are covered?

● Is routine maintenance 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 are the cancellation and refund policies?

To File a Complaint

The FTC works for the consumer to prevent

fraudulent, deceptive, and unfair business

practices in the marketplace and to provide

information to help consumers spot, stop, and

avoid them. To file a complaint or to get free

information on consumer issues, visit ftc.gov or

call toll-free, 1-877-FTC-HELP (1-877-382-

4357); TTY: 1-866-653-4261. The FTC enters

Internet, telemarketing, identity theft, and other

fraud-related complaints into Consumer

Sentinel, a secure, online database available to

hundreds of civil and criminal law enforcement

agencies in the U.S. and abroad.