How Much Should you Pay for your Next New Car

by : Levi Quinn

For most of us, the idea of buying a new car fills our hearts with dread. We nervously approach the salesperson. We discuss. We haggle. We finally walk out of the showroom with the keys in our hand, but we can't shake the feeling that we may have overpaid for the car.

How do you know what you should be paying for a new car? The answer is easy: Do your homework. A little bit of time spent researching at home gives you the option of purchasing a car with confidence.

The sticker price

The sticker price of any vehicle is a nice bit of fiction. It is an inflated dream the dealership would love to realize. Car salespeople tell you that the sticker price should be the starting point of your negotiations. It shouldn't be. In fact, the sticker price bears no relevance whatsoever to the proceedings to come. Don't even look at it. The only reason to glance at the sticker in the window is to determine what options are available on that specific car if you are thinking of purchasing it off the lot. Otherwise, disregard sticker price entirely.

Where do I start?

Your research should be complete before you ever leave the house. Begin by choosing the perfect vehicle. All car manufacturers have detailed websites that allow you to research the vehicle thoroughly and even "build" an ideal car. Once you have found the ideal car, it's time to find out how much the car really costs. Again, the internet is your friend.

Many websites offer insight into how much the dealership actually paid for the car - the invoice price. This price should be your starting point for negotiations. Once you know what the dealership has paid for the car, you can figure out what a reasonable profit would be.

Think you're done? Not quite. While figuring out the profit margin of the dealer can be a good strategy to getting a better price on a car, there are a few other things to consider as well.

Check to see if the dealer is receiving any rebates from the manufacturer on the vehicle. These rebates are offered to dealers on certain models. If a rebate is available, then even if the dealership sells at or below invoice price, they are still making a profit. Most car-comparison websites offer this information.

Consider the popularity of the model. If you are trying to purchase a car that is in extremely high demand, you may find that there is no negotiation. The sticker price - or even above - may be the best deal you'll find. Thankfully, this is an unusual situation. With most car models, there is significant room to bargain a price you're comfortable with.

Once you've gathered all your information, you are ready to shop. Visit several dealerships and see who offers the best price. Once your salesperson realizes you are armed with all the inside info, you'll get the best deal possible.