There’s something exciting about driving a new car off the lot. But purchasing a new car can be pricey, especially if you aren’t careful. If you’re in the market for a new car, it’s important to take the time to research and shop multiple dealerships and financing options.
Research the MSRP
Whether you’re new car buying or you’re open to a used car, it all starts with understanding what the value of your car is. The manufacturer’s suggested retail price is only one number you need to know. You can use KBB.com for determining three different values for a car:
- Invoice price: A dealership doesn’t get cars for free. The invoice price reveals the cost to the dealer to purchase the vehicle. It’s important to note that this doesn’t include the money the dealer puts into getting the car ready to sell.
- MSRP price: Manufacturers recommend a price to go on the sticker of each car, aptly called the “sticker price.” This amount will typically be the highest market price for that vehicle. In some cases, a vehicle may be in high demand or have limited availability, which is when you’ll see that sticker price slide a little lower than market rate.
- Fair purchase price: This is what Kelly Blue Book specializes in. You can check KBB for the current pricing guidelines for the make and model of the vehicle you’re considering purchasing.
By having the fair purchase price in mind when you visit a dealership, you’ll already have a leg up in negotiations. You’ll know just how much the sticker price exceeds the fair purchase price of the car. You’ll also know the invoice price, which will tell you what the dealer likely paid, along with the profit the dealership is hoping to make off a sale.
Get Loan Preapproval
Unless you can pay cash for a new car, you’ll be facing the prospect of borrowing money to buy your car. The interest rate you’ll be offered will vary widely from one lender to the next, so it’s important to shop around. In addition to the lender’s standard offerings, your rate will also be based on your credit score.
Before you start shopping for a new vehicle, get a car loan preapproval from at least one lender. Start with a monthly payment you know you can afford and look for a loan that will stay within that payment amount. This will tell you just how much you can afford to spend on a new car before you head to the lot.
Shop Multiple Dealerships
From the start, accept the fact that you won’t simply head to one dealership and drive off with a car the same day. It’s important to compare offerings at various dealerships and possibly even shop around. You can even start your search online, looking at all your options before starting to shop locally.
There are a few factors that will influence the price you’ll pay for a car. If you want to sell your existing car as a trade-in on the new vehicle, you may be able to qualify for a better deal on the car you’re buying. But it’s also important to be well aware of the going market rate for any vehicle you’re interested in to ensure the offer you’re getting is a good one.
Wait for the Right Time
Whether you’re buying a new or used car, timing is everything. The truth is, pricing fluctuates throughout the year, even with a new car that’s just hit the market. Here are some of the best times to buy a new car.
- End of the year: Dealers need to get rid of cars to make room for new ones. This typically happens at the end of the model year, which is when this year’s cars are switched out for the latest and greatest. According to Edmunds, December has both the highest discount off MSRP and the best dealer incentives.
- Summer months: As spring turns to summer, manufacturers start delivering next year’s models, which means dealerships start feeling anxious to get rid of inventory. But as fall begins, it often makes more sense to wait until December to buy.
- End of the month: Dealerships rely on sales teams to move inventory. Those sales teams have monthly quotas that they must meet. For that reason, you might get the best price by waiting until the last week of the month to approach dealerships for a deal.
- Weekdays: This doesn’t relate to deals as much as getting the salesperson’s attention. Weekends will be the busiest time at a dealership. For best results, visit on a Monday or Tuesday, unless it’s a holiday like Labor Day or Memorial Day. Those are also often busy for dealerships.
Shop Multiple Financing Options
Even if you were preapproved before you started car shopping, you should get quotes from multiple lenders. You can compare them against each other and choose the interest rate and terms that work best for you.
- Banks: You may want to start with your own bank since having everything in one place is easy. This will give you a good baseline, but be aware that if you’re with a large, corporate bank, you might not get as good a deal as you’ll find with smaller lenders.
- Online lenders: The internet has made it easy to shop multiple lenders at once. You can even find sites that will let you shop for an auto loan by inputting some basic information, then giving you quotes from multiple lenders.
- Credit union: Credit unions aren’t just for teachers and police officers anymore. But if you are offered membership in a credit union as a perk of employment, shop car loans there as part of your research. If you aren’t, check with small banks and credit unions that are open to the entire community.
- Dealer: Going through the dealer is a popular option due to the convenience. But dealers want to make a profit, so they add a percentage to the rate their lenders give. This markup, called the finance reserve, means you’ll probably pay between one and three percent extra over what the dealership was quoted as an interest rate.
Read More: How Long Does it Take to Get a Car Loan From a Bank?
Test Drive Multiple Cars
One of the top car-buying tips you’ll see is to test drive multiple cars before deciding on one. This goes whether you’re set on a make and model or not. This is a no-brainer if you’re buying a used vehicle, but many buyers skip this step when buying new.
By test driving multiple cars, you’ll get a feel for how the one you’re buying compares. Don’t just look at how it rides. Pay attention to how all the tech features work, the size of the glove compartment and trunk and the legroom for passengers, whether they’re in the front or back seat.
Ask for a Price Quote
When you’re buying a new car, you’re often at the mercy of dealerships, unlike with used cars where you can purchase from a private seller or independent lot. Dealers know this and take the opportunity to tack on a bunch of fees to purchases. As you’re getting closer to making a decision, ask your top choices of dealers to provide a detailed price quote, including all these fees.
Here are the new car dealer fees typically added on to purchases:
- Vehicle registration fees: You’ll pay this no matter where you buy the car. It’s the cost to have the dealership handle registering your new car with the state or county.
- State sales tax: Sales tax will be charged both on your purchase and the vehicle you’re trading in. You might be able to negotiate the trade-in sales tax on the price of the car you’re buying.
- Destination fee: The dealership pays a fee to have the car transferred from the factory, and that fee is passed on to the eventual buyer. You probably won’t be able to negotiate this, even if you pick up the vehicle from the factory yourself.
- Documentation fee: The dealer has calculated a certain administrative fee associated with preparing the paperwork for you. This might be negotiable.
- Advertising fees: In some cases, dealerships charge a fee to customers to cover the cost of advertising the vehicle. Instead of wrapping this cost up in the price of the vehicle, the dealership lists this separately, which makes it negotiable, as well.
Say No to Extras
One way to save money is to skip some of the extras dealerships try to add on. This includes an extended warranty, which sounds convenient at the time. But you can always buy that later or shop around for a better deal and double back to the dealership if you find that they’re giving the best deal.
Another extra you’ll be sold is gap insurance, which can be valuable for a new vehicle. Your new car will drop in value when you drive it off the lot, and gap insurance is designed to cover the difference if your car isn’t worth what your insurance company offers if you total it. Check with your auto insurer and various gap insurance providers before signing up for gap insurance through the dealership.
Read More: What Does a Bumper-to-Bumper Warranty on a Car Mean?
Consider Certified Pre-Owned and Used
A new car isn’t the only option. Even if you’re set on a specific make and model, a gently used car could be an option. Research online and search all local dealerships for that type of car. Sometimes you’ll find a gently used car that was sold to a dealership or smaller lot as a trade-in.
If you want some of the perks of buying a new car without the cost, a certified pre-owned vehicle might be a good alternative. These vehicles often come with new car extras like extended warranties and rebates.
Price Leasing Costs
Car buying isn’t the only option. If you have a decent credit score, leasing could give you a lower monthly payment for the same brand-new car you’re considering buying. For those who buy a vehicle for work, lease interest can sometimes even be claimed as a tax deduction.
But before you agree to a lease, make sure you know the pitfalls. You’ll be limited on your mileage, and there are fees specific to leases. If you’re financing, leasing can save you money over buying new, but buying used is significantly cheaper, even with financing. But you’ll also save on repair costs with a lease.
Read More: What Are Rent Charges in Leasing a Vehicle?
The most important car-buying tips are to research and shop around. If you arrive at a dealership, equipped with information on competitor prices and market value, you’ll be in a better position to negotiate. Over time, even a small amount negotiated off the purchase price will add up, particularly if you’re financing the car.
Stephanie Faris has written about finance for entrepreneurs and marketing firms since 2013. She spent nearly a year as a ghostwriter for a credit card processing service and has ghostwritten about finance for numerous marketing firms and entrepreneurs. Her work has appeared on The Motley Fool, MoneyGeek, Ecommerce Insiders, GoBankingRates, and ThriveBy30.