How Much Should You Pay For Your New Car

by : Neil Teasdale

When you go into a car dealership, you want to know all of the pricing and costs of the car that you are looking into buying, as mentioned earlier. Being prepared will save you tons...period. You should know the manufacturer's cost and the dealer's cost.

You need to calculate the cost that the dealer paid for the car and then make a reasonable offer. The idea is to get a good deal rather than getting taken to the cleaners. The only way to do it is preparation and being realistic.

You should also know that the dealer's price is not the invoice price from the factory. You should know that the dealer's cost is much lower than the factory's cost. Having said that, keep in mind that the dealer is not going to give away anything, but they might listen to something that gets them some cash. But always work from the dealers cost.

In order to make a fair offer to a dealership, you need to learn to read a factory's invoice. Here is what you can expect to find on the factory invoice.

- Base model of the car on it
- All of the options packages
- Destination charge
- Holdback and dealer flooring help

Quick Tip: DO NOT confuse the invoice with the MRSP window sticker because they are not the same.

Contrary to popular belief, dealers don't have to tell you the invoice on any car. This often gives the dealer leverage over you.

They can offer you one dollar over the invoice. You should know that there are hidden factory incentives in the invoice price that lowers the cost of the car for the dealership. You're not getting any deal here.

If a dealership is very quick to show you the invoice, you should note that they are fully aware that they will be making good money on that car from you and they can settle at a lower price for the car.

Having this knowledge before you walk into a dealership can be your best negotiating strategy. See, they will tell you that you can afford to buy the car at MSRP hoping that you will not then wonder what the actual worth of that car is.

Knowing this information can let you make them the same offer and put you in the driver's seat. (OK, brutal pun)

If you offer a few dollars over the factory invoice (which is the actual worth of the car) then you can open your bid and let them know how much profit they can make off of your offer. Take some time and look through these cars buying web sites to get the entire factory invoice pricing of a car.

Dealers are always going to try and tell you that they paid more for the cars than they actually did so that they can make a higher profit off of the sale.

Salesmen will often try and make you feel guilty by telling you "I'm losing my shirt off of this deal." In truth, you are the one that is losing your shirt off of the deal, so don't buy into it.

To help you calculate what your offer should be to the dealership, you should get the factory invoice price (don't forget to include the options in this price), and add 5% to that amount. That will give you a good starting point for your offer the dealership.

When I mention the options, I mean the ones that you can't avoid. Some cars come equipped with a CD, sun roof etc. and these are fees that you can't avoid paying so be sure to account for these when setting your total factory invoice price.

You should also be sure to account for any buyer rebates as well when calculating your dealership offer. So in the end your offer should be calculated like this:


Calculating your offer to a dealership is as simple as that. Don't complicate it anymore and don't let the dealer complicate it either. When you are considering how much you can afford for a car, be sure that you don't get sucked into paying more than that.

If you are unwilling to pay more than your opening offer, let the salesman know that your offer stands firm and how they will profit from the offer.

In the end you will get what you want on your own terms. Below is a good example for you to follow, feel free to print this or write down the example and put it in your car buying folder.

You are hoping to buy a Toyota Camry. You do your research at, and find that the invoice price is $19,922; MSRP is $22,385. The dealer may offer you the car for $22,000, and shows you the invoice.

You learned by researching that there is a $500 factory to dealer incentive; and a $447 holdback on the MSRP (2%).

Based on the above calculations, the dealer's real cost is $19,922 (invoice) - $500 (incentive) - $447 (holdback) = $18,957. You can see that this is lower than the factory invoice number.

Now, if you add the 5% for your offer to that price, the car price will be up to $20,379 due to the addition of $455 for the destination charge that is always present. Now if you compare the MSRP offer that the dealership had listed, you will see that based on the example above you just saved yourself $3428.

This may seem a little complicated but if your use a pre-designed spreadsheet from or, the program does all the calculation for you. A little preparation and a reasonable offer will go a long way to getting the car you want at a great price.