Whether you're looking into buying an inexpensive used car or a new luxury vehicle, you probably don't want to just accept the price the seller gives you right away and would rather negotiate to save some money. Factors that impact how much a car is worth on the market range from major details such as the brand, mileage and condition to minor details like the color or even small customizations. The potential cost of your next vehicle can also depend on the financing method used, discounts offered and purchase method. Knowing the many factors that impact a car's price and ways you can reduce the cost before you go car-buying can help you negotiate with the seller to get the best price.
Exploring Car Price Terminology
When you're shopping for a vehicle, know that there are more numbers involved to consider beyond just the price tag you see quoted on a website or on a window sticker on a vehicle located at a dealership or other selling location. These include prices related to the dealership's purchase cost, the value of the vehicle on the current market and the manufacturer's valuation.
If you're dealing with a new vehicle, then you have the manufacturer's suggested retail price – also known as the sticker price – which specifies the amount the manufacturer believes will get the vehicle sold on the market. Keep in mind that the MSRP doesn't represent the invoice price that the dealership paid to obtain the vehicle in its inventory. The MSRP is usually a higher price than what a consumer will end up paying since you can negotiate with the seller to get a better deal.
The market value is another price to consider as it represents the amount other customers are willing to pay and thus will impact the cost you face. You'll often find that this price sits between the MSRP and invoice price for a new vehicle. For a used vehicle, the market value is especially important, and the research company named Kelly Blue Book has a popular website that helps determine the value of a used car based on various market factors as well as an analysis of the car's condition and mileage. Whether you're a buyer or a private seller, the KBB is an invaluable resource so that you don't overpay or charge too little for a vehicle.
Read More: How to Calculate the Price of a Car
Factors Impacting Car Pricing
- Brand: The car make and model will impact the price of new cars due to the MSRP set and for used cars based on the supply, demand and market trends for the car. For example, a rare European luxury car would likely have a much higher price than a basic sedan from manufacturers like Chevrolet or Ford. At the same time, prices will vary by specific versions of the same kind of vehicle due to features included.
- Mileage: A car's mileage is considered a major factor when it comes to price since the more the car has been driven, the more likely there is wear to the exterior, interior and parts. These factors come into play more when you're shopping for a used vehicle than a new one since a new car likely has very low mileage from activities like a test drive and moves around the dealership.
- Condition: Closely related to a car's age and mileage, the condition has a significant impact on a car's price and is a reason why you'll pay more for a new car in excellent condition than an old car with a lot of wear and tear. However, know that mileage and age alone don't immediately signal a car's actual condition. While some cars with high mileage may have parts that are nearing the end of their lifetime or physical defects like chipped paint or buggy electronics, others may have been well maintained and repaired over time with just minor cosmetic issues. At the same time, a newer car may have significant issues from a past car accident even if it has low mileage.
- New versus used: Since a new car will experience significant depreciation within the first few years, you'll find that used cars have lower costs. At the same time, the fact that used cars have wear and tear and higher mileage make them cheaper than new options. You'll need to consider factors such as reliability, your budget and your preferences to determine whether to go the used or new car route.
- Location: This factor ties into the supply and demand of the specific type of car where you're located since harder-to-find options in your location tend to cost more than common vehicles.
- Features: Handy features like moon roofs, heated seats, touchscreen multimedia consoles and driving assist cameras usually add to the price of any car since they're considered perks rather than essentials. Even common features like automatic transmissions and power windows and locks lead to higher prices than cars with manual transmissions, locks and windows.
- Dealership versus private seller: Since dealerships have overhead costs to pay and also do extra work like inspect vehicles and offer service, this can add to a vehicle's price versus buying from a private seller who doesn't have a car lot to manage and doesn't inspect your vehicle. You'll weigh factors like a warranty, convenience and service options at dealerships versus more uncertainty and less support from private sellers in your decision.
Researching Car Prices and Values
Since there are so many factors involved in a car's price, doing research early on is essential. So, before you start getting quotes or making any offers, use tools like the KBB or Edmunds websites to enter details both for your desired vehicle and any trade-in car so that you know the value for both of them. This can help you weed out dealerships and private sellers that are asking for too much. Further, it can help you determine whether it's a better decision to sell your old car yourself rather than trade it in at a dealership.
During your research, know that estimations can vary by source and that they might not take into consideration every detail of a particular car's condition or features. So, it can be helpful to make note of low, medium and high ranges for a car's value.
Finding Car Options
Once you know the target price for your next car, you can begin to look at dealerships as well as consider private sellers if you're interested. Whether you're buying used or new, be sure to check important details such as mileage, condition and features and look at the price breakdown you're given. You could even use car comparison tools to get a side-by-side picture of multiple options.
Ideally, you'll want to make note of at least a few vehicles from different sources and request quotes for them. Since it can be easy to pay too much since you might get emotionally attached to the car and accept a higher price than you should, keeping things flexible by having multiple options will help you later on. That way, if one seller doesn't want to negotiate with you, then you have a few other options to fall back on.
Factoring in Trade-in Value
If you've got a vehicle you need to get rid of when you buy your new one, the trade-in value can help you get the best price alongside other factors. After researching your used car's value on the Edmunds or KBB sites, you should know the estimated worth. You can mention to potential sellers that you have a vehicle you'd like to trade in and ask if there are any trade-in deals as well. You can subtract the trade-in amount and any other discounts offered from the price of your next vehicle.
If you get trade-in offers that are much lower than the prices in your research, you could negotiate that amount alongside your next vehicle's price. On the other hand, you could consider selling your old car privately for a potentially higher amount but more work along the way.
Read More: Trade-In Vs. Retail Value
Shopping Around for Financing
Unless you will pay cash for the next car, you'll end up with a monthly car payment that can be costly with interest charges that add to the overall cost you pay for the vehicle alongside things like registration and sales tax. This means you'll want to get your credit in good shape before trying to get financing so you can get the best interest rate. Know that making a sizable down payment on the car reduces the loan amount and can help reduce interest, and going for a shorter loan term can also help.
You'll also want to consider the different places to get financing such as the dealership, credit unions and banks. While convenient, dealership financing can come with higher rates and less room to negotiate. On the other hand, you might get better rates from the bank or credit union where you already do business and have accounts. It can help to request preapproval from a few choices and see the auto loan terms offered. You can weigh the options and go with whichever offers favorable terms and the amount of money you need to borrow.
Handling the Negotiation Process
Whether you start the negotiation process online or by phone, or you wait until you've seen the car in person, being patient, starting your research early on and being flexible will all help you with the negotiation process, notes Dave Ramsey. Here are some steps to consider when negotiating the price of a used or new car:
- Make sure negotiation is allowed: Beware that there are some dealerships or car manufacturers that set a specific price and don't allow any negotiation. For example, Edmunds mentions that Tesla cars are usually sold only at the MSRP. At the same time, there are "no haggle" dealerships that give you a price and won't lower it for you; while this can be good if you don't like to go through the negotiation process, it can mean paying more than you otherwise would.
- Understand how counteroffers work: When you plan to make an offer on a car, know that there's a good chance that the seller won't just take your first offer. Instead, they'll likely counteroffer with a higher price than you requested and may go down more as you continue to make offers. This means that you shouldn't immediately offer the most money you're willing to pay based on your research. Instead, you can go lower and then work your way up to the actual amount you want.
- Leverage your research and evidence: Getting quotes from multiple sources earlier can help you as you make offers since you can document an offer from another dealership or person and then use that to leverage a lower car price. You can also print out price information you've found online so that the seller knows you've done your homework and understand the true value of the vehicle.
- Ask about rebates and other promotions: Along with relying on your ability to negotiate a better price, don't forget to ask about current incentives and rebates if you're buying the car from a dealership versus a private party. This can range from cash discounts from manufacturers to immediate discounts for certain groups like students, first responders and military personnel. If you're financing through the dealership, you can also ask about deals like zero-interest loans.
- Consider extra perks included: Know that the price quote for a vehicle may include more than just the car as it is. For example, it could have an extended warranty or add-on services included, and this could make a deal actually better than it seems it is. Before you make an offer at all, be sure to get information on everything included so that you can get a better idea of a reasonable price.
- Know when to walk away: Your patience and flexibility come into play when a seller just refuses to offer a good price for a vehicle regardless of how much you tried to negotiate and how much evidence you showed for the offer. In these situations, you need to consider walking away rather than paying a higher price for a car you like. This is where having multiple options really helps make the negotiation process less painful.
Read More: How to Bring Down a Dealer's Price
With these tips in hand, you should be ready to start researching cars and negotiating offers. By preparing and negotiating, you'll be more likely to identify the best price for your next car.
- Cars.com: What Does MSRP Mean?
- Kelly Blue Book: Car Shopping Made Easy
- Investopedia: Just What Factors Into The Value Of Your Used Car?
- Dave Ramsey: How to Negotiate the Best Price on a Car
- Edmunds: How to Negotiate Car Prices
- Edmunds: How to Use New-Car Incentives and Rebates
- NerdWallet: Compare Costs: Buy New Car vs. Used?
- The Appraisal Lane: A Guide to Retail, Trade-In, and Private Party Values
- U.S. News & World Report: How to Negotiate the Best Car Price
- J.D. Power: Compare Cars
- NerdWallet: How to Get the Best Price for Your Trade-In
- Lending Tree: Where To Find the Best Auto Loan Rates
- CarFax: 4 Factors that Impact Car Value
Ashley Donohoe has written about business and technology topics since 2010. Having a Master of Business Administration degree, bookkeeping certification and experience running a small business and doing tax returns, she is knowledgeable about the tax issues individuals and businesses face. Other places featuring her business writing include Zacks, JobHero, LoveToKnow, Bizfluent, Chron and Study.com.