What You Should Pay for a New Car

If you've shopped for a new car before, you know that it can be confusing. There are a lot of pricing terms dealers use. And let's face it, the dealers certainly aren't looking to make things easy. 

If you go into the car-buying process understanding the different pricing terms, and what the dealer's cost and profit margins are, you can probably avoid paying too much.

Below we define some common car pricing terms and offer guidance on what you need to know to get the best price on your new car. And remember, before you drive any car off the lot, make sure you have car insurance lined up. An independent insurance agent can help you get the coverage you need at a price you can afford. 

Defining New Car Pricing 

Why are there so many prices listed for a new car? Which one should you pay attention to, and what do they all mean?  

Sticker price 

The sticker price is the manufacturer's suggested retail price or MSRP. It's what the dealer wants you to pay for a new car. But you never, never should.

This is the price you'll see in TV commercials and plastered on the windshields of new cars on the dealer's lot. If you pay the price listed as the MSRP, you are paying too much.

Invoice price

The invoice price is what the dealer pays the manufacturer for each vehicle sold. You can think of it as wholesale or invoice pricing. 

Any amount above the invoice price is the dealer's profit. You should always ask to see the dealer's invoice prices on new cars before you start negotiating. The reason? Knowing the MSRP and invoice price gives you the upper and lower limits you're working with.

When negotiating, start at the invoice price at work your way up. It's a lot more effective than working down from the MSRP.

Fair purchase price 

This is the price you want to pay for a new car. It should be somewhere between the MSRP and the invoice price. Your ability to negotiate, along with dealer rebates and other incentives, will get you to this price.

When Is the Fair Purchase Price Actually Fair?

The "fair" in fair purchase price depends on a few factors:

• What car you want: If you want the latest, hottest model out right now, you're going to pay closer to the sticker price.
• Willingness to negotiate: You'll always feel like you got a "fair" price if the dealer gives in to at least some of your demands.
• Cash down: How you finance the deal can matter. Cash in hand typically means you can get a better price.

There are additional factors, but at a basic level, you're going to get a better price if you: 

• Know how to negotiate.
• Will settle for last year's model. 
• Have cash in hand at the dealership.

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How to Calculate the Best Offer

Once you find the vehicle you want and can afford, try to calculate the dealer's profit margin that is fair to the dealer and that you can afford. An offer 3% to 5% higher than the invoice price is usually considered fair to both parties. 

Do your research to determine what this figure should be. Read reviews, compare cars, and even consider getting quotes from multiple dealerships. The more information you have, the more the negotiations will go in your favor.  

How to Get the Best Car Insurance for Your New Car

Shopping for car insurance isn't much different than shopping for your new car. Comparison shop, be informed, and go to the best, most reliable source to make your purchase. 

Independent insurance agents make comparison shopping easy because they work with many insurance companies and can get you several quotes to review at once. Independent agents are ready to help you get the auto coverage you need at a price you can afford.