The average cost of buying a car in 2016 was $33,845 -- that's a big purchase. And to get that car, you need to deal with a salesperson who's been trained to give you the worst deal, if possible. See how much you know about budgeting, haggling, negotiating and the art of making a deal.
What should you pay attention to when you test drive a car?
Test drives are your time to really get to know what could be your next car. Do a walk-around, get acquainted with the cabin and take it on the road. Listen for road and engine noise, pay attention to how it accelerates and brakes -- and don't forget about ride comfort.
Also known as the finance rate, APR is the interest rate on a loan. What does "APR" stand for?
If you're financing your car purchase, you'll see your loan comes with an annual interest rate -- the Annual Percentage Rate, or APR. And when it comes to interest rates on loans, the lower the better.
You decide you want to buy your car at the end of its lease. What's the remaining price called?
The buyout price is the remaining cost at the end of the lease term, which you're responsible for paying if you decide you want to keep the car.
What does MSRP stand for?
MSRP, which stands for Manufacturer's Suggested Retail Price, is also what's known as a vehicle's sticker price. Like the name says, it's a suggested price -- which is usually the highest market price for the car, set by the manufacturer. By law, the MSRP is displayed on every new car in showrooms across the U.S., but there's no law saying you have to pay that price.
Which of these credit scores is best?
FICO credit scores range from 300 to 850, and the lower your score is, the riskier lenders think it'll be to loan you money. Scores above 700 are good. Most fall between 600 and 750, and the average score in 2016 was 673.
When leasing a new car, who is the "lessee"?
There's additional terminology when you decide to lease instead of purchase a car. The "lessee," for instance, is the person who is leasing the car: you.
When all other tactics fail, which strategy can be effective?
Sometimes the best way to get what you want is to act like you don't want it. You don't have to agree to the first deal the salesperson offers -- or the second, or third. And one of the best tactics for changing that deal can, often, be your decision to walk away. (Don't worry, they'll follow.)
If your salesperson considered you a "chiseler," what are you good at?
If you're a "chiseler," you're a good negotiator. Who doesn't want to be a chiseler?
Why does a salesperson usually ask you where you work or what you do for a living?
Car salespeople aren't just making small talk when they ask about your career. This is one way dealships participate in the very legal activity of price discrimination, which is when the salesperson strategizes to charge you the most for a car based on what they think your income is. Counteract it by downplaying what you do or where you work.
All of these characteristics make you a good candidate to lease a car, except which one?
If you put a lot of miles on your car in a year, leasing a vehicle may not be the best option. Leased vehicles typically have mileage limits, and they can be as low as 10,000 to 12,000 annually -- and you'll pay penalties for going over.
How many car-shopping customers actually qualify for those 0 percent financing deals?
Interest-free loan offers are so tempting, but if you don't have a stellar credit rating, you may not qualify. In fact, about two-thirds of car buyers interested in those interest-free loans don't qualify for the deal.
Is "no haggle" a bad deal?
"No haggle" car sales seems a lot less stressful, doesn't it? No negotiations! But it's not always good for your finances -- just say no to "no haggle" prices that are more than 5 percent of the dealer cost.
What's a new vehicle's Fair Purchase Price?
The Fair Purchase Price of a new car is based on what people are typically paying for that car. It's based on real transactions across the U.S., and it is tracked down to specific makes and models.
Which is not one of the three things included in dealer cost?
There are a lot of variables in figuring out dealer cost, which is the actual cost the dealer paid for the car, including invoice price, dealer holdback and any factory-to-dealer incentives (such as on slower-selling options).
If you plan to finance your new car purchase, your monthly payments should be no more than what percent of your monthly take-home pay?
When you finance, smartly, budget no more than 15 percent of your paycheck -- after taxes -- for your monthly loan payments.
What is the invoice cost of a new car?
Invoice cost on a new car is available for every car, and every trim level. It's the dealer's cost for the car -- but just the car itself, not all the extras that get rolled into the final price, such as advertising, sale, prep, display and financing of the car.
When is not a good time to buy a new car?
Buying a car out-of-season, like a convertible to ring in the New Year, can get you a bargain because the dealer doesn't want them hanging around. Similarly, buying at the end of the month allows you to take advantage of dealers' monthly sales quotas. But the best time may be to buy at the end of the year, before new models hit the showroom.
A new car will lose how much of its value in the first five years?
You can expect your new car to lose as much as half of its value in its first five years.
How big of a down payment should you plan to put down?
The bigger the better when it comes to your down payment. Plan to put down at least 20 percent of the car's purchase price as your down payment.
When's the best time to discuss your trade-in?
The best thing to do with your trade-in? Even if you plan to trade it in and use the value to offset the cost of the new car, don't let the salesperson know that -- once the value of your trade-in is established, it can give the salesperson leverage to actually get you to pay more for the new car.
What's the "down stroke" in a car-buying deal?
The "down stroke" is a sales term in the car buying experience. It's a phrase meaning the customer's down payment on the vehicle being purchased.
Which is a fair offer?
Making an offer that's 5 percent over the actual dealer cost -- not including "destination charges" or other negotiable fees -- is fair to both you and to the salesperson.
When leasing a new car, who is the "lessor"?
When you lease a car, you're either the person who's making the payments or the person who collects those payments. The "lessor" is the finance company -- the entity that collects the payments.
You know what you want, but just can't seem to settle on a deal, and all this time at the dealership is wearing you down. To avoid this, your goal should be to close negotiations in how much time?
You're all set to sign on the line for your new car, but the negotiations are dragging out. To avoid giving the salesperson an upper hand in making you tired, keep your negotiations to 30 minutes. If you can't sign the deal by then, it's probably time to leave.
What is it called when you owe more on your car than it's worth?
Negative equity, also known as being "under water" or "upside down," means you owe more on your car than your car's worth. While that may not matter so much in your driveway or on the road, it does matter when you're trying to trade in that vehicle.
Is it a good deal if the salesperson changes the terms of the loan to lower the potential monthly payments?
Although this is a pretty common way for a salesperson to get you to the magic number that you can pay every month, it's not actually doing anything much in your favor. What you want, instead, is a lower price point.
Which of these fees is one you really don't have to pay?
Dealer prep fees, which can range from $100 to a few hundred dollars, are added to the purchase price to cover "prepping" your new car to go from the lot to your home. If a fee's legit, it'll be listed on the factory invoice.
Which is known as the "Ben Franklin close" among car salespeople?
Draw a line down the center of a piece of paper. On the left, the salesperson writes a list of why you should buy a car today. On the right, you're supposed to fill in why you shouldn't. It's manipulative, and you don't have to play along.
What's the slang among car salesmen for a co-signer?
You'll never hear them say it to you, but the person you've brought with you to co-sign the loan is a "babysitter."
You've budgeted for monthly car payments, but how much should you set aside for things like gas and repairs?
Be prepared before you go to the dealership. Figuring out your car budget isn't difficult: your new car should cost a minimum of 5 percent less what you've budgeted for your car purchase. You'll need the rest to cover gas, maintenance, repairs and auto insurance.
Dealers are paid a specific amount of money every time they sell a new car. "Dealer holdback," as it's called, is typically what percent of the invoice price, minus the destination and delivery fees?
Dealer holdback (also called factory holdback) varies by manufacturer, between 0 percent and 3 percent of either the MSRP or the invoice price. The best way to estimate it? Calculate 3 percent of the invoice price (minus the destination and delivery fees) for domestic vehicles and 2 percent of imports.
What's the best way to approach price negotiation?
The best way to approach price negotiations, everyone's favorite part, is to start with the dealer cost, and negotiate up to a price you're comfortable with.
Dealer Installed Options (DIO) are items added to a car at the dealership. Factory Installed Options (FIO) are installed at the factory. What does PIO stand for?
PIO are Port Installed Options and refers to imported cars. PIOs are items that are installed at the port, after leaving the factory, before coming to the U.S. You can count on both Factory Installed Options and Port Installed Options being factory-approved changes, but not those installed at the dealer.
Car loans can have term lengths that'll keep you paying your monthly payments for years. When choosing, which term length should be your cap?
For the smartest budgeting decision, it's best to limit the length of a car loan to no more than 48 months. If you can't handle the monthly payments at that pace, you may be in too deep.
Who pays vehicle registration fees when you buy your car at a dealership?
When you buy your car from a car dealership, the dealership handles the vehicle registration fees.
You Might Also Like
About HowStuffWorks Play
How much do you know about dinosaurs? What is an octane rating? And how do you use a proper noun? Lucky for you, HowStuffWorks Play is here to help. Our award-winning website offers reliable, easy-to-understand explanations about how the world works. From fun quizzes that bring joy to your day, to compelling photography and fascinating lists, HowStuffWorks Play offers something for everyone. Sometimes we explain how stuff works, other times, we ask you, but we’re always exploring in the name of fun! Because learning is fun, so stick with us!