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 fancy pricing terms dealers use. And if it leaves you feeling confused, you aren't alone. 

Understanding these terms can help you:

• Negotiate a better price
• Know when a price is fair
• Help you research on your own before going to a dealership

Below, we define these terms and offer guidance on what you need to know to get the best price on your new car. No matter your budget, you can find affordable car insurance within our trusted network.

Defining New Car Pricing 

You'll notice there are a lot of different prices when you're looking at new cars. Here's what the terms 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 to sell their vehicles. You can think of it as wholesale or invoice pricing. 

Any amounts above the invoice prices are 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.

Even at rock bottom - the invoice price - dealers have incentives to sell certain cars. This means that even at the invoice price, some dealers are still making a good amount of money. When you're 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 below the MSRP, but above the invoice price. Your ability to negotiate, along with dealer rebates and other incentives, will get you to this price.

Let's recap: From high to low you have:

• Sticker price, or MSRP: Never pay this
• Fair purchase price: Somewhere in between MSRP and invoice price
• Invoice price: What the dealer paid for the car

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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.

The Kelley Blue Book Price

These factors are helpful, but they still don't tell you what you should pay. That's where the Kelley Blue Book comes in.

The Blue Book uses its own calculations to determine a fair price and takes depreciation into account. Some models hold up better over time, and that factors into what to pay for them. according to the car experts at Kelley.

Example: A 1-year-old Honda Accord may have a sticker price of $26,665, while the invoice price may be $24,466. Since you are familiar with the process of buying new cars and you're eyeing last year's model, you can offer a fair purchase price of $23,731, according to the Kelley Blue Book. 

This is the price KBB has determined most consumers have paid for a 1-year-old Accord. This only proves that dealers can still profit if they sell the car at below invoice price.

Using these prices to compare and contrast what you should offer on new cars can save you as much as 11% off the advertised rate. At least, that's what was saved in the Honda Accord example above. Other models have even better margins.

Comparison Shopping Applies in Cars and Insurance

What to pay for a new car is partially determined by how much the "accessories" cost - titles, taxes and car insurance. 

Comparison shopping makes it easy to save on insurance. Independent insurance agents make it quick and easy because they work with more than one company. They can get quotes for coverage that most other captive agents can't. 

Once you save on your new car, save on insurance with an agent.