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How to Understand New Car Pricing Part 2

June 14, 2012

This is part 2 of how to understand new car pricing. In the first post, we talked about the sticker price, the dealer invoice and the holdback. We will know discuss other pricing terminologies along with a few tips that will teach you how to pay less cash on any new vehicle.

Here are a few other pricing terminologies that you will encounter when buying or leasing a new vehicle:

1. Dealer rebates and other incentives

Rebates, incentives, cash back, low APR financing, low monthly lease offers and customer cash are all there to save you money. The primary motive of a car dealer is to sell cars. In order to attract more buyers, they offer cash rebates and incentives to make the purchase more affordable.

Remember that factory-to-consumer rebates are different from factory-to-dealer incentives. The former is given directly to the customer, while the latter is given by the factory to the dealer. The dealership may prefer not to pass on factory-to-dealer rebates directly to you, but knowing the presence of such might help you negotiate a lower price.

2. Destination charge

The destination charge is the cost of bringing the car to the dealership from the factory. The amount will depend on the type of car. No matter where you live, the factory will charge the same destination fee for a particular vehicle. For example, the destination charges for a 2013 Ford Taurus in Alabama will be the same if you live in Wyoming.

3. Dealer cost

The dealer cost is not a mystery number. It is used to arrive at the fair selling price of the car, after taking into consideration the factory invoice, holdback, destination charges, and the rebates and incentives.

If the salesman shows you the factory invoice of the vehicle and you buy the car using that price, you got yourself a good deal. But as previously mentioned in the first post, you can do better.

The problem with the invoice price is the presence of the holdback and the rebates. If you take this for granted, then the dealer will still earn thousands of dollars more even if you buy the car at invoice price.

Tips that will help you pay less on a new car:

1. Get the invoice price of the vehicle and deduct the holdback.

2. After deducting the holdback, you should add the destination fee.

3. Deduct any available cash rebates and other factory incentives.

4. Add the sales tax and the interest charges of the loan to arrive at the fair selling price of the vehicle.

Want to save thousands and pay the lowest price on your new vehicle? All it takes is the right kind of information on new car pricing.

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