What is MSRP?
MSRP is an acronym that stands for Manufacturer’s Suggested Retail Price. This number is decided by the manufacturer, not the dealer to be used as the sale price offered to the buyer.
MSRP is also known as the “Sticker price” you see displayed on a new car’s window showing a dollar price.
What is the vehicle’s invoice price?
Car manufacturers ship out vehicles and immediately submit an invoice to the car dealership containing the “invoice price”. However, after vehicles are sold, car dealerships receive various incentives such as holdbacks, volume discounts. This means the dealer’s final net cost is lower than the invoice price.
What is a Car Dealer Holdback?
A car dealer holdback is a percentage of the MSRP or the invoice price (depending on the car manufacturer) that the manufacturer pays the car dealer after a car is sold. Holdbacks are used to provide more flexibility to the dealer to offer special discounts while still earning a healthy profit.
It is important to be aware when buying a car that car dealerships get holdbacks and other discounts so you can know how much negotiation room either you or the car dealer has in agreeing to a lower price.
How do car dealers price a new vehicle?
Most jurisdictions mandate dealers to advertise “all-in-prices” which means MSRP (Manufacturer Suggested Retail Price) plus Freight/PDI, and all applicable fees.
When negotiating the price of a new vehicle, ask for a breakdown of what makes the total sales price, so you understand how the car dealership is pricing the vehicle.
What is the lowest price I should pay for a new vehicle?
Under no circumstance should you agree to pay the full MSRP price? The car dealer will receive anywhere between 6% to 8% in the form of rebates from the manufacturer after the vehicle is sold, but even before those discounts, they are already making good money off the difference between the MSRP and the invoice price.
Find out what the dealer cost is and add $500. That should be your first offer. Here is the formula of what makes the dealer cost.
Dear cost = Invoice Price – Holdback – Rebates & Incentives (if any)
Is it possible to buy a car below the invoice price?
Yes, it is. You just need to ask and negotiate for it. The salesperson won’t offer a lower price unless you ask, hold your position and can prove that you have made a fair offer.
For example, let’s say your offer is $1,000 less than the invoice price to buy a RAV4 on the current year’s model.
If Toyota is offering car dealerships $2,500 in discount incentives to sell all RAV4 models in preparation for the new year’s model, the dealership might decide to agree to your deal and take the $1,000 loss compared to their invoice price, but later receive $2,500 from Toyota which means their net profit is still $1,500.
When is the best time to buy a new car?
If saving money is your main concern, the best time to buy a new car is from September to December. The best month to buy a car is November which is when most car manufacturers offer discount incentives to sell previous year models.
Besides September to December other good times to buy a car are at the end of the month, the end of the quarter, and the end of the year. Car dealerships have monthly, quarterly and yearly sales quotas and their bonuses depend on those sales quotas. In these times sales representatives or sales managers are motivated to get the deal done even if they are making little profit or no profit on the transaction.
How much should I spend per month on my car payment?
You should spend no more than 10% of your gross monthly income on car-related expenses. That means if your gross annual income is $50,000; per month it would be $50,000 / 12 = $4,167. Now 10% of that monthly amount is $4,167 * 10% = $417 per month.
Because cars lose a tone of value over time. You want to be able to tie the value of what is being lost to a number you can absorb without affecting your finances in other areas.
Should I buy rustproofing for the vehicle when the dealership offers it?
No, you should not buy rustproofing for your new vehicle; it’s a complete waste of money. New vehicles now come already protected for rustproofing; they are galvanized before shipping out to the dealers. This is why you no longer see on the streets rusted vehicles.
The galvanized protection car manufacturers add does not provide 100% protection against any kind of weather, but the extra protection car dealers sell will not provide extra protection.
When the dealer offers the service it will sound cozy and nice; after all who doesn’t want to protect their car against rust, but it’s a waste of money. Don’t do it.
Should I buy an extended warranty for my new car?
No, when buying a car you should not buy an extended warranty for your new car. The extended warranty helps if you are buying a lemon so don’t buy a lemon instead. Most new cars should give you no problem within the first five years.
By year six or seven a few things might come up here and there, but chances are those things will be caused by wear and tear.
Also, data shows most consumers spend more on buying the extended warranty than on claims filed afterward. This is why many personal financial advisors would also advise you against buying an extended warranty on your new car.
Should I trade in my old car or sell it privately?
You should sell your car privately instead of trading it in because you will get more money. However, selling it privately can become a hassle. You will need to take pictures, post an ad, receive phone calls and meet with people to show them the car; after all, time is money, so in some cases, it might be better if you simply traded your car in.
Another thing to consider is sales taxes. When you trade your old car in the dealer will deduct this amount from the price of your new car and you pay sales taxes only on the net amount but you don’t get that benefit when selling privately.
Should I buy a new car if I am still making monthly payments on my old car?
Buying a new car when you are still making payments on the old car only makes sense if your existing car is worth more than what you owe on the loan. However, over 50% of vehicles that are traded in have upside-down loans. If you are upside down on the old loan, it means you have negative equity on the vehicle.
Buying a new car when you are upside down on your existing loan is really silly. Don’t do it because you risk getting buried in debt you will find it very hard to get out of or take forever to pay off.
I am a road warrior, what kind of car should I buy?
If you are a road warrior whatever you drive will get destroyed in value pronto. Cars normally depreciate about 20% in the first year, but for those that drive over 90 miles (150 km) per day, it means your can could go down in value by as much as 50% on year 1.
By the end of year two, you’d have very little value left, so don’t buy a new car; buy a used car instead.
Is leasing cheaper than buying a new car?
No, leasing is usually more expensive than buying. If leasing were cheaper, the leasing companies would not be able to afford to buy the vehicles to then lease them out.
The first three years are the years when cards depreciate the most; so if you are planning on keeping the vehicle for more than three years, then buying is the best option as it relates to saving money.
Are car prices negotiable?
That’s a resounding YES. When it comes to buying a car, new or used, all prices are negotiable.
If you want to increase your income so you can buy your dream car you should check out our Salary Negotiation Online Course.