Other than a home, a new car is typically the most expensive purchase many consumers make. The average price of a new car in the United States is over $28,000. Because of the amount of money involved with the purchase of a new car, it's important to know how to make a smart deal.

Think about how much you can afford to pay and how much you're willing to spend. Invest time into research. Determine what make, model, and options you want.  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 that discuss new car features and prices. These publications may provide information on the dealer's cost 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 to make comparisons.

Plan to negotiate on price. Dealers may be willing to bargain on their profit margin. Usually, this is the difference between the manufacturer's suggested retail price (MSRP) and the invoice price.

Because price is a factor that affects your monthly payments and is a factor in the dealer's calculations, regardless of whether you pay cash or finance, negotiating the price can save you money.

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.

Terminology

Negotiations often have a vocabulary of their own. Below 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.

Manufacturer Suggested Retail Price (MSRP) means just that -- a suggested selling price for the retailer.  The MSRP of a vehicle does not include taxes, registration, transportation to the dealership and other miscellaneous fees. While most people expect to get a discount off the MSRP, when all of the extraneous charges are added in, the price "out the door" might be close to, or even higher than, the MSRP.
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 shows the base price, the manufacturer's installed options with the MSRP, the manufacturer's transportation charge, and the fuel economy (mileage). This Monroney sticker 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 or additional dealer profit, 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 and compare finance offers.  Shop around for the best deal by comparing the annual percentage rate (APR) and the length of the loan. When negotiating the financing, do not focus solely on the monthly payment. The total amount you will pay always depends on the price of the car you negotiate, the APR, and the length of the loan.

Sometimes, dealers offer 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.

Trade In

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 publications that can tell you how much it is worth. This information may help you get a better price from the dealer.

Just remember, no matter how tired you may be of your current vehicle, a dealership isn't doing you a favor by taking it off your hands. If the dealership buys your car, it's because there's an inviting profit at the end of the transaction.  Though it may take longer to sell your car yourself, you typically will get more money than if you trade it in.

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 manufacturer's warranty. Remember that a warranty is included in the price of the car while a service contract is an additional cost.

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 parts and labor? 
• Who performs the repairs? Can repairs be made elsewhere?
• How long does the service contract last?
• What are the cancellation and refund policies?

Although the above listed information may seem like a lot to consider, entering into a deal as a well-informed consumer will increase your likelihood of having a good feeling about your new car as well as the purchase process.