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Buying a New Car (by Consumers' CHECKBOOK, Spring/Summer 2013)



New Car

Don’t sit down for one-on-one negotiations with a car salesperson. It’s a waste of time, and you’ll end up paying more than necessary. Many websites provide target pricing or promise low quotes from area car dealers. While some of these sites mean well, most are simply conduits of easy referrals to the dealers who pay the sites. 

The only reliable way to get the best possible price is to make dealers bid competitively for your business. 

Since 1991, CHECKBOOK’s CarBargains service has used our buying approach to get nearly 100,000 consumers the lowest possible prices on new cars. We charge $250 for the CarBargains service ($225 for CHECKBOOK subscribers) and, for those who want to lease, $350 for the LeaseWise service ($315 for CHECKBOOK subscribers). 

This table shows the best prices our CarBargains staff obtained from area dealers for some popular cars. As you can see, the prices we found were typically much lower than the average paid by consumers. Our approach often saves consumers hundreds, and sometimes thousands, of dollars. 

You can do this on your own. This article provides step-by-step instructions on how it works. 

Leasing cars is considerably more complicated, but our approach is the same. You need to get dealers to bid not only on the price of the car, but also on other details of the lease, as described in this article. 

Getting a new car should be fun. You don’t want to spoil that pleasure hassling with dealers and worrying afterwards that you paid too much. 

We hear often from consumers who sat eyeball to eyeball with car salespeople for hours negotiating prices. They wasted their time. The only leverage you have with car dealers is the possibility that you’ll walk out and buy from another dealer, or not buy anything at all. 

We hear from other consumers who used websites that promise to provide information to help them obtain the best price, or in some cases, a (supposedly) low price quote from a car dealer. Some of these websites mean well: They try to arm shoppers with price data they can use to negotiate better-than-average deals. But most just provide referrals to participating—really, paying—dealerships. Even when these sites seem to provide low prices, they often omit important details like hefty document fees, extra fees to locate specific cars, or costly mandatory options. 

We have a method that both avoids hassles and yields the best possible price. The key is competition—getting new-car dealers to bid competitively for your business. 

Since 1991, CHECKBOOK’s CarBargains service has helped nearly 100,000 consumers get the lowest possible prices on new cars. We charge $200 for the CarBargains service ($175 for CHECKBOOK subscribers) and, for those who want to lease, $350 for the LeaseWise service ($315 for CHECKBOOK subscribers). 

The table below shows the best prices CarBargains staff got from area dealers for some popular car models. As you can see, the prices we found were typically much lower than the average prices paid by consumers. Our approach saves buyers hundreds, and sometimes thousands, of dollars. 

Table 1—Prices Obtained via Competitive Bidding Process for Several Popular Vehicles

Prices Obtained via Competitive Bidding Process for Several Popular Vehicles2013 BMW 328i sedan with premium package and navigation system2013 Ford Fusion sedan SE with MyFordTouch Technology package2013 Honda CR-V EX-L2013 Honda Odyssey LX2013 Hyundai Sonata GLS with popular equipment package2013 Nissan Altima sedan 2.5 with floor mats2013 Toyota Prius "Two"
Manufacturer’s Suggested Retail Price $42,645 $25,515 $28,375 $29,505 $22,515 $22,680 $24,960
Factory invoice price (includes destination and advertising fees) $39,250 $23,941 $26,790 $27,160 $21,860 $21,470 $23,947
CarBargains’ low bid as a markup/markdown from factory invoice price** $300 ABOVE invoice price $200 BELOW invoice price $100 ABOVE invoice price $500 BELOW invoice price $1,500 BELOW invoice price $1,000 BELOW invoice price $400 BELOW invoice price
Customer rebate $0 $1,500 $0 $0 $0 $0 $0
Typical Selling Price* $40,231 $22,858 $27,300 $28,056 $21,403 $21,033 $24,298
CarBargains’ price** $39,725 $22,416 $27,065 $26,835 $20,535 $20,645 $23,722
CarBargains’ savings from Typical Selling Price* (including $175 CarBargains service fee) $506 $442 $235 $1,221 $868 $388 $576
* As reported by Kelley Blue Book, based on actual transaction data, including advertising fees and manufacturer-to-dealer incentives, if applicable. Prices do not include dealer document fees, taxes, tags, or title fees.
** CarBargains’ price is the lowest quote obtained and includes advertising fee, and manufacturer-to-dealer incentives, if applicable. None of the prices shown include dealer document fees, taxes, tags, or title fees.

If you don’t want to pay us to do the work, you can do it yourself. You have to be careful and persistent, but you don’t need to know all the intricacies of the car business. 

Leasing is considerably more complicated, but our approach is the same. You need to get dealers to bid not only on the price of the car, but also on the other details of the lease, described below

Getting Dealers to Fight for Your Business, Step by Step 

1. Decide what vehicle you want to buy. 

Don’t contact any dealers for prices until you know what you want to buy. Do your research. Take test drives. Then decide on the make, model, and style of car you want (for example, a Toyota Camry SE). Since you’ll be asking dealers to bid on any car of the make, model, and style, at this point you don’t have to decide on all the exact factory-installed options you want. But it helps to have some idea of how you want to equip it. 

2. Talk to fleet managers or sales managers. 

Call dealers located near you and ask to speak with the “fleet manager,” if they have one. Because the fleet manager’s regular job is to coordinate sales of two or more cars at a time, some dealerships don’t allow fleet managers to deal with retail customers. In that case, insist on speaking with a “sales manager.” The advantage of dealing with fleet managers is that, unlike sales managers and salespersons, fleet managers’ commissions are usually based primarily on sales volume—as opposed to gross profit per vehicle sold. If you can’t speak with a sales manager, keep calling dealers until you reach someone with the authority to offer the dealership’s best possible price without checking with the boss (or pretending to check with the boss). 

3. Get several bids for the car. 

You will need to take notes. If you wish, you can use our two worksheets. On one sheet, you can record the information you need to compare dealers. On the other sheet, you can calculate your total purchase price with each dealer.

We recommend getting bids from at least five dealers. 

Explain to the fleet or sales managers that you are contacting multiple dealers to get bids for a car, and that you will buy from the dealer that offers the lowest total price, including all required fees. Tell them you are giving each dealership only one opportunity to bid for your business. 

Ask each dealer to bid an amount above or below “factory invoice price,” which is the same for all dealers in a particular region. If one dealer bids $500 above invoice price and a second bids $500 below invoice price, you’ll know the second bid is $1,000 lower than the first. With this approach, you don’t have to decide on the exact options until after the bidding is complete. 

You can refer to several sources for information on invoice pricing, including Kelley Blue Book. But you don’t really need to have invoice price information in advance; just tell each dealer you will expect to see the actual factory invoice for any car you consider buying. 

4. Get costs for freight and advertising fees. 

Find out each dealer’s charges for freight and dealer advertising association fees. The charge for freight always appears on the invoice. Advertising fees may or may not appear on the invoice; if not, you easily can find them through various sources on the Internet. 

5. Ask about other required fees. 

Find out about document fees, required add-ons, and any other miscellaneous charges. Most dealers—and websites that promise low, no-haggling prices—neglect to mention these charges until the end of the transaction. Ask about them upfront. Some dealers add pinstriping and wheel locks to every car they sell, and almost all dealers impose document fees. These extras often add up fast. 

6. Ask about dealer-installed options. 

On most cars, most popular options are installed at the factory. Since you’re getting prices reflected as markups or markdowns from invoice price, all factory-installed options are, in effect, priced at invoice price. But for some makes— particularly Honda, Acura, and Volvo—some popular options are dealer-installed. For example, some manufacturers don’t factory-install rear spoilers or fog lights. If you are interested in these dealer-installed options on these cars, find out how much each dealer you contact charges for them. 

7. Ask about rebates. 

Check whether a factory-to-customer rebate is available for your car. CHECKBOOK subscribers can get current rebate information from our CarDeals newsletter. But make sure factory-to-customer rebates are not reflected in the dealers’ bids. 

8. Check charges to locate the car you want. 

If the dealer who offers the best price doesn’t have a car with the options and color you want in stock, it should be willing to locate it for you. While there usually is no charge to acquire cars from another dealer, it doesn’t hurt to ask about it. If you want to factory-order your car, find out if there is a fee. 

9. If you want to lease, nail down the details. 

Because several variables determine the price you pay for leases, you’ll have to gather additional details from dealers. It is much more complicated to get bids on leases, compared to outright purchases, but it can be done—our CarBargains staff arranges leases every day. If you’re interested in leasing, check out our advice below. 

10. Get confirmation. 

Again, you can use our two worksheets to record what the dealer promises. Once you have your bids, ask the lowest bidder to send you an email confirming all the details of its bid.

Once you have your bids, ask the lowest bidder to send you an email confirming all the details. 

Questions and Answers 

You can go through this bidding process with each dealership. Don’t be intimidated. If you don’t understand something, or if their answers sound fuzzy, ask again. You will almost certainly save hundreds—and maybe thousands—of dollars by following this process. 

Below are additional details on our competitive bidding method. 

What Is a Good Price? 

There’s no one answer to this question. The right price depends on supply and demand at the moment for a specific car. Some consumer-advice articles and books offer guidelines, such as “Shoot for $150 to $300 over invoice for a midsize car in good supply.” Ignore it. The only way to find out what you should pay is to get dealers to bid. Our CarBargains service gets many bids hundreds or thousands of dollars below invoice, but for some vehicles we’re lucky to get bids of $1,000 or more above invoice. 

What if the Dealers Won’t Give Me a Price? 

Many excellent dealers will respect your businesslike approach and respond in kind. Others may not be so helpful. You may get responses like— 

  • “I’ll beat any price you get. Call other dealers and then call me back.” 
  • “What do you think is a fair price? You tell me: What do you want to pay?” 
  • “We don’t quote prices over the phone. Just come in and I’ll give you the best deal in town.” 

Make sure these dealers understand that if they don’t bid, they have no chance of getting your business. Be businesslike and persistent, but if a dealer refuses to make a serious bid, move on to the next one. 

What Does “Factory Invoice Price” Really Mean? Aren’t There Hidden Kickbacks? 

“Factory invoice price” is theoretically what the dealer paid the manufacturer for the car; the dealer will have a printed invoice showing the figure. Factory invoice price is less than “manufacturer’s suggested retail price” (MSRP), the “list price” shown on the car’s window “sticker,” and indicates how much the manufacturer theoretically thinks the car costs. 

Actually, almost all cars are sold below MSRP, and some are sold below factory invoice price. In fact, over the years, between 25 and 45 percent of CarBargains customers (depending on market conditions at the time) have received bids below factory invoice price, in some cases several thousand dollars below invoice. 

Dealers sell cars below factory invoice price because the factory invoice seldom reflects the true cost to the dealer: Dealers often get “holdbacks,” end-of-year carryover allowances, factory-to-dealer incentive payments, and other allowances that reduce the cost below factory invoice price. 

Although factory invoice price is not what the dealer paid, it is useful because it’s the same for all dealers. That’s why you can use it as a reference point for bids. 

How Can I Get Bids without Deciding on the Exact Options I Want? 

You are better off if you don’t limit dealers’ bids to specific options or a specific color. Factory-installed options will have the same invoice price at every dealer. Get each dealership to apply its markup or markdown commitment to any car of your make, model, and style, regardless of options. Decide later which factory-installed options you want and add the invoice cost of these options to the base invoice price to calculate the total invoice price of the car you want with the options you want. The dealer’s markup or markdown commitment will be included in the total invoice price. 

This approach allows dealers to bid even if they don’t have a car with a specific option you’ve requested but isn’t important to you. Don’t rule out a low-priced dealer that doesn’t have a vehicle with a particular option in stock, but could easily get one from another dealership. Also, if you change your preferences for options at the last minute, you want the dealer to commit to a price level relative to other dealers regardless of the specific vehicle—with the specific options—you ultimately choose. 

Once you have obtained bids, call the low bidder to find out what specific options and colors are available on cars either already on its lot or that it can get for you. 

Dealer-installed options require a somewhat different approach. Some manufacturers—particularly Acura, Honda, and Volvo—are set up to have dealers install a number of popular options on some models, so there is no factory invoice price for these options. If you might want any of these dealer-installed options, you will have to get prices from each dealer. 

What Are Advertising Association Fees? 

Most dealerships belong to regional associations that handle advertising for their make of car within the region. The cost of this advertising is divided among the members and, for most makes, appears as a charge on the vehicle invoice. All or nearly all dealers in a region are in the advertising association and display the same advertising association fees on the invoices prepared by the manufacturer. Theoretically, a dealership could choose not to participate in the regional advertising association and thus avoid these fees, but few do so. 

Most sources that provide information on MSRP and invoice prices don’t include advertising association fees because these sources distribute their information nationwide and fees vary from region to region. 

You don’t really have to know the fee for your model of vehicle to compare dealer prices because dealers within a single region will all charge the same fee. But you will eventually have to find out the fee in order to calculate the final price. Some manufacturers list the fee on invoices; for others, you’ll have to ask or check various sources on the Internet. 

Dealer advertising association fees don’t appear on the window sticker (MSRP) because these fees are included—and not broken out—in the markup between invoice and sticker price. 

How Do Rebates and Incentives Work? 

If a car manufacturer offers a factory-to-customer rebate, the customer can get it directly from the manufacturer or have the dealer apply it to the purchase price, further reducing the price of the car. 

By contrast, a factory-to-dealer incentive payment, or “dealer rebate,” is money the factory gives the dealer for each car sold. The dealer can keep the money as profit—or pass it along to the buyer. One purpose of the competitive bidding process is to prod dealers to give you this incentive money—$500, $1,000, $2,000, or even more—as a price reduction. 

Our CarDeals newsletter provides information on rebates and incentives. 

What More Do I Have to Know About Prices and Costs? 

The more you know about factory-to-dealer incentive payments and other allowances dealers receive, the better you’ll be able to bargain. It also helps to know the current market—the lowest prices cars like yours are selling for. Our CarBargains staff is also aware of the prices the same car is selling for around the country, so if they don’t get as good a price, they know to keep pushing for additional bids. 

But without devoting your entire life to car-buying, you can’t hope to know about all the available allowances and current selling prices. And even if you do, you’ll still need a strategy for using that information to your advantage. For example, many websites claim to report what consumers currently are paying for cars, and some even tell you what you should pay. We find these numbers seldom represent the best deal you can get through competitive bidding. You have to count on competition—and the fact that no dealer knows how much the next dealer will give away—to drive down the price. Make competition work for you. 

What if a Dealer Won’t Honor Its Bid? 

With our CarBargains service, this almost never happens—about once per 1,000 customers. In these cases, we refund the CarBargains fee and encourage the customer to use the next lowest bidder. But dealer reneging could be a problem for individual buyers. The best way to avoid it is to be very businesslike. Deal only with a sales manager or fleet manager. Review the details of the bid by phone. Have the low bidder email confirmation of its pricing. If a dealer tries to renege or make changes, immediately take your business to the next-lowest bidder. Dealers seldom quote prices that they can’t live with—so make it clear at the outset that if they try to bump up the quoted price, you’ll walk. 

Should I Take Into Account Which Dealer Offers the Best Repair Service? 

New car warranties require buyers to use an authorized dealer for covered repairs. For warranty service, you’ll naturally want to use a dealer located near you that performs high-quality repair work. Click here to see our ratings of area auto repair shops, including local dealerships, for repair service quality. But you don’t have to have warranty repairs performed at the dealership that sells (or leases) you the car; the manufacturer will reimburse any of its franchised dealers for your repair work. So you can buy your car at the dealership that offers the best price, and get repairs from the dealership that offers the best service—or has the most convenient location. 

How Should I Deal with Financing, Trade-in, and Other Extras? 

Don’t sacrifice the savings of a good price by overpaying for financing, an extended service contract, rustproofing, paint sealant, and other add-ons. And make sure you don’t get too little for your trade-in, if you have one. 

Notice that the steps recommended for obtaining bids don’t mention financing, extended service contracts, or trade-ins. Omit these matters from the discussion until you have a firm agreement on the price of the new car, but take them up before you put down a deposit. 

Mentioning trade-in or financing while you are still negotiating the price of the new car will simply confuse matters. The dealer could give you a good price on one part of the deal and make it up elsewhere. There will be too many balls in the air, and car dealers are better jugglers than you. If they ask if you have a trade-in, say you plan to sell your old car on your own. If they ask if you need financing, say you have arranged for it separately. 

The key point: Deal with financing, extended service contracts, trade-ins, and other matters as completely separate business matters. 

There is nothing wrong with doing business with your new car dealer on these extras as long as you keep them separate—and you are well-prepared. Dealers commonly make more money on extras than on sales of new cars. Before you go to a dealership to complete your new car purchase, find out the true price of all the extras you want. 


It is vital to check out financing options in advance. Although interest rates are currently incredibly low, serious money is still at stake. Total payments for a 48-month $20,000 loan, for example, are $849 higher with a four-percent interest rate than a two-percent rate. 

Check the annual percentage rate (APR) currently offered by banks in your area. If you belong to a credit union, check its rate. Several institutions offer auto loans nationally. Use to identify lenders and get some idea of current bank rates. 

To make sure you get an acceptable financing option, have your loan approved elsewhere before closing the deal on your new car. You can opt for the dealership’s financing plan if it offers a better APR. 

Car manufacturers often offer special financing plans, sometimes as alternatives to cash rebates. If you have a choice, you must figure out whether the financing plan is a better deal than the cash rebate. The answer depends on the size of the rebate, the manufacturer-offered plan’s APR, the APRs available from other lenders, and the amount and length of the loan. Use online loan payment calculators to compare the interest for the manufacturer’s special rate to the rate you could get on your own, and then compare those savings to the amount of the cash rebate. 

Extended Service Contracts 

If you are considering an extended service contract, definitely shop other sources before discussing it with your new car dealer. Extended service contracts yield big profits to the dealers that sell them and the extended service contract companies that back them. The average payout for claims on a $2,000 contract might be less than $400, with the rest going to sales and administrative costs and profit. 

Many new cars are very reliable and require little service. Also, new cars often carry lengthy manufacturer warranties covering many common service problems and leaving little for extended service contracts to cover. 

If despite these facts you decide to purchase a service contract, determine exactly what it covers. Almost all contracts exclude maintenance and wear items, ranging from brake parts to exhaust system components to air filters. And many contracts exclude—or fail to include—electrical devices like power windows and radios, interior trim, gauges, and even air-conditioning systems. Some, but not all, contracts cover costs of towing and rental cars. Some cover parts but not all the labor necessary for diagnosis and repair. And most contracts require a “deductible” for each repair—in some cases as much as $100—before the service contract company pays anything. 

Find out where you can get repairs done—at only the selling dealer, at any authorized dealer for your make of car, at any new car dealer, or at any new car dealer or independent repair shop. Since consumers tend to be more satisfied with repairs performed by independent shops rather than dealers, the option of using an independent shop is very desirable. 

Also, check how the shop will be paid. Under some contracts, the shop bills the contract company; under others, you must pay the shop and seek reimbursement—often long-delayed—from the contract company. Even if a service contract company allows shops to bill it directly, find out if repair shops you might use will in fact bill the contract company; many shops refuse to put up with the hassle of collecting from service contract companies. 

Finally, make sure the service contract company is financially sound. In recent years many of these companies have gone out of business, rendering their contracts worthless. Consider a service contract backed by an auto manufacturer. 

Key point: You don’t have to buy an extended service contract from the place where you buy your car or intend to have it repaired. You can buy a Toyota, for example, from one Toyota dealer, buy a Toyota-backed service contract from a different Toyota dealer, and have still another Toyota dealer fix your car. We have found cases where one dealer was selling contracts for under $1,000, while another was selling the same contract for more than $3,000. 

Also, you don’t have to buy your service contract at the same time you buy your car. Many contracts are available from dealers for a year or more after purchase. So take your time making a decision. 

Before you go to a dealer to purchase a car, find out the prices and coverage of service contracts from other dealers. Then use these alternative vendors either to help you negotiate a good service contract price from your dealer or sell you a contract if it doesn’t. 

We provide for free the results of a nationwide bidding process in which dealers competed on how inexpensively they would offer CHECKBOOK readers major car makers’ extended service contracts. There is a factory invoice cost for these contracts, just as there is for every other factory-supplied product new car dealers sell, and CHECKBOOK had dealers compete to offer their lowest prices relative to invoice cost. Buying from one of our website’s low-quoting dealers listed for extended service contracts can save you several hundred dollars. 

Other Add-Ons 

If a dealer has already applied rustproofing, paint sealant, or fabric protection, you will have to pay for these treatments, and they will almost certainly be overpriced. When dealers have outside vendors do the work, it usually costs less than $50 per car—any more they charge is just extra markup. It’s better to buy from a dealer that applies these treatments to cars only after a customer requests them. 

Rustproofing presents special problems. Many manufacturers advise against dealer-installed rustproofing. Most claim rustproofing is unnecessary, and some are concerned that it will block weep holes and actually contribute to rust or jam seatbelt stopper mechanisms in treated car body cavities. 

Burglar alarm systems, wheel locks, and other add-ons may be worthwhile, but find out what other dealers and independent shops charge for them before discussing them with your dealer. Again, use the other companies’ prices as negotiating standards or buy the add-ons from the other companies. 

Keep in mind that some dealers add items like pinstripes and wheel locks to all cars on their lots. For these dealers, take into account the costs of these items when you compare competing bids. 

Your Trade-in 

You can easily lose what you gain from paying a good price for your new car by relinquishing your old car for too little. You can sell your car at wholesale to a new car dealer’s used car department or to an independent used car dealer. Think of a trade-in as a wholesale sale to the dealer where you buy your new car. 

Before attempting to sell your car, make any necessary minor inexpensive repairs and clean it up. Clean the interior, and wash and polish the exterior. A spiffed-up car not only looks and smells more appealing; it also suggests that you have taken care of what’s under the hood. 

To sell your car wholesale, plan to spend a few hours visiting several independent used car dealers and dealership used car departments. Visit used car departments of dealerships that sell the same make as your used car. Explain what you are doing: shopping the car around to get the best offer. 

Don’t rely on used car valuation books—blue books, black books, or any other color—to determine the value of your car. We use these and other sources to develop a rough estimate as a service to our CarBargains customers, and have made this striking observation: After asking all the right questions and using the various sources with great care, the estimates derived from different sources for the same car vary by more than 20 percent, which for some cars amounts to more than $2,000. 

The only reliable way to find out what your used car is worth is to shop it around and see what dealers will pay you for it. If you go by a book, you may undervalue the car and give it away for far less than it’s worth, or overvalue it and become frustrated when dealers won’t give you what you want. 

Only with offers in hand from other dealers and a firm price for the new car from the dealer you plan to buy from are you ready to talk about a trade-in. Ask what the dealer will give you for the used car. Don’t reveal your other offers; the dealer may offer you more than anyone else. If the dealer offers less than others, ask the dealer to match them. If your new car dealer eventually offers as much or more than you can get elsewhere, go ahead with the trade-in. If not, sell the car elsewhere. 

As you consider your options, think about selling your car to another private party. You will get more selling the car this way (typically $1,000 to $2,500 more for a late-model vehicle), but it will involve more time and effort. 

If you do plan to sell on your own, take the car around to a few used car dealers first. What the dealers will pay wholesale is a reference point for setting your price and negotiating with potential buyers. Don’t sell it for less than the wholesale price. While you’re visiting used car dealers, see what similar cars are selling for. Also, check ads for similar cars in newspaper classified sections and Craigslist, and access for an extensive list of used cars for sale. Advertise your car at a price roughly in line with advertised prices for similar cars. 

Is There a Right Time of the Year to Buy a New Car? 

No. Predicting the car market is no easier than predicting the stock market. Prices respond to supply and demand: When there is excess supply, dealers drop prices and manufacturers create incentive programs to move their vehicles. 

Should I Shop Outside My Local Area? 

For most cars, just go out as far as necessary to involve at least five dealers in the bidding process. 

Car Shopping Information Resources 

Here are a few of the many information resources that can help you shop for a car. 

Invoice and List Prices 

Since you will want to get dealers to bid an amount above or below invoice, you need to know in advance the vehicle’s invoice price—for the base vehicle and each available option. This information is available free at many websites, including,, and

The best price information sites on the Web let you “build” a vehicle—you select options and see how the invoice and list price increases with each added option. These sites allow you to add only options you can get; you can’t add power seats, for example, if you have already added a “comfort package” that includes power seats. Among several others, Kelley Blue Book allows you to build cars this way. 

Rebates and Incentives 

Dealers may make more aggressive bids if they know you’re aware of currently available factory-to-dealer incentive programs. Also, to anticipate the likely final cost of your car, it helps to know if any factory-to-customer rebates are in effect. Subscribers can download for free our biweekly CarDeals newsletter, which contains information on current rebates and factory-to-dealer incentives. 

Used Car Prices 

A number of websites offer free information on used car pricing—information that helps you value a car you plan to sell or trade in. Useful sites include and The used car listings at will also give a sense of how much your car is worth. 

Remember, these sources provide only a very rough guide to your car’s value. The best way to find out its real wholesale value is to shop it around to several used car dealers. 

Low Prices on Extended Service Contracts 

Click here to view for free our list of the lowest-priced dealers for extended service contracts.  

Special Considerations If You Want to Lease 

Getting a good deal on a car lease is considerably more complex than on a straight purchase. When purchasing a vehicle, you shouldn’t discuss financing until you have settled on a purchase price, and you should shop around for finance sources other than your dealer. For leases, however, you can’t separate the financing (lease contract) from the purchase of the car. You usually can’t find a good price at one dealer, and then get a bank or credit union to buy the vehicle and lease it to you. As a result, you have to find a dealer that both charges a low price for the vehicle and also offers a good deal on lease financing. 

Dealers love this complexity. If you don’t understand the entire transaction—or find it difficult to keep track of the financing and price details—the dealer can throw in costs without your even knowing it. But if you want to lease, you still can—and should—get competitive bids. In addition to getting bids on the price of the car, to get a good deal you have to find out about pricing and terms for several lease features. 

The first decisions are the length of the lease and how many miles you expect to drive the car during that time. Once you’ve decided on those issues, go ahead and collect additional information from dealers. 

As with new-car purchases, get an email confirming commitments on all the details from the lowest bidders. 


Because the price of the leased vehicle (“agreed upon value” in the lingo of leasing) is a key element in the cost of the lease, collect all of the information you would need for a straight purchase. 

Shop for price first and then for lease features—although sometimes the prices for leases and purchases are different. 

Lease Features 

In addition to the price, you’ll have to nail down several other details, many of them set by the financing company. As with new-car loans, different financing providers offer different rates and terms. When we get quotes from dealers for our LeaseWise customers, we check our database of lease programs offered by more than 30 sources to identify the programs best suited (best combination of money factor, residual, etc.) to satisfy each customer’s preference. You can also ask dealers to tell you which of their programs will work best for you. Many dealers will identify their best programs without much prodding. 

Lease Term 

The “lease term” or “duration” is the amount of time you have contracted to lease the vehicle (24 months, 36 months, etc.). 

Capitalized Cost 

“Capitalized cost” (or “cap cost”) should be separated into “gross” cap cost and “adjusted” cap cost. Gross cap cost includes the agreed-upon price of the vehicle plus any fees, extended service plans, gap insurance premiums, and other add-ons you must pay upfront. Adjusted cap cost—the gross cap cost less any reductions resulting from a trade-in, cash down payment, or rebate—is the amount actually financed with the lease. Many lease ads and some dealerships imply that cap cost is the same as MSRP, but this is untrue. Leasing a vehicle with a cap cost the same as MSRP is like buying a vehicle for full sticker price, which is much more than most customers should pay. 

Capitalized Cost Reduction 

“Capitalized cost reduction” is lease-speak for a down payment. Your combination of any cash down payment, trade in, and rebate you assign to the dealer reduces the capitalized cost. The bigger your capitalized cost reduction (the more you put down), the lower the adjusted cap cost—amount financed—and the lower your monthly payment. 

Residual Value 

“Residual value,” the value the leasing company theoretically estimates that the vehicle will have at the end of the lease term, is usually figured as a percentage of MSRP. For example, a $20,000 MSRP vehicle with a residual percentage of 60 percent on a two-year lease is estimated to be worth $12,000 ($20,000 x 60 percent = $12,000) at the end of those two years. 

The difference between residual value and adjusted capitalized cost is the amount of principal you will have to pay off during the lease term (you will also have to pay a finance charge, or interest, on the amount of money the leasing company has tied up in the car). Therefore, the higher the residual value——all else being equal—the lower your payments. 

Residual percentages and residual values vary with lease term and miles driven per year. Some makes and models of vehicles retain their resale value better than others, and therefore have higher residual values. In addition, manufacturers sometimes agree to buy back cars at lease-end for more than the car is likely to be worth on the market. By subsidizing the residual value this way, car manufacturers keep lease payments lower than they otherwise would be in hopes of leasing more cars. Although a vehicle’s residual value sometimes bears little relation to its real expected future market value, residual value nonetheless is very important because it is used to calculate monthly payments. 

End of Lease Purchase Price and Option to Purchase 

Lease contracts generally give customers the option to purchase the vehicle at the end of the lease for the residual value. For example, if the residual value is $12,000 after two years, you can purchase the car by paying the leasing company $12,000—plus a purchase option fee many plans impose. 

Sometimes the option to purchase price is not the stated residual value but rather “market value” plus the purchase option fee. Market value may be computed by using one or more market guides. 

Money Factor 

A leasing company may use either a “money factor” or “annual percentage rate” (APR) of interest to express the way it calculates the finance charge. To calculate the APR for a given money factor, multiply the money factor by 2,400. 

Money factors vary for different models of vehicles and lease terms, and different leasing companies usually use various money factors. All else being equal, a lower money factor means lower payments. 

When manufacturers want to push leases or sales of particular models, they often subsidize the money factor or APR—offering finance charges lower than general market interest rates. 

Assignment Fee 

Many leasing companies charge an “assignment fee,” essentially a processing fee, to set up a lease. The amount varies, but $300 or $400 is common. Some dealers inflate assignment fees and retain the portion they don’t have to turn over to the leasing company. Some leasing companies hide the assignment fee in the monthly lease finance charge calculation rather than expressing it as a separate fee. 

Allowable Miles 

 “Allowable miles,” the number of miles the lease allows you to drive for no additional charge, typically range from 12,000 to 15,000 miles per year. 

“Additional contracted miles” are miles above the allowable miles you contract for in advance at the time the lease is executed for an extra charge, usually expressed in cents per mile. 

“Excess uncontracted miles” are miles you drive above the allowable miles and above “additional contracted miles” in the lease. The penalty for excess uncontracted miles at the end of the lease, usually expressed in a cents-per-mile charge, can be quite costly. Try to estimate accurately in advance the number of miles per year you will drive the vehicle. 

Early Termination Penalty 

Most leases impose a substantial “early termination penalty” for terminating a lease before it expires. It may cost several thousand dollars, depending on when the lease is terminated—the earlier it’s ended, the higher the early termination penalty. Make sure your lease term is correct for you. If there is a significant chance you won’t be able to make payments throughout the lease term, a lease is probably not a good option. 

Gap Insurance 

“Gap insurance” protects you if your leased vehicle is stolen or totaled in an accident. From the leasing companies’ point of view, total loss of the vehicle is a form of early lease termination. Typically, your auto insurance company would pay off the claim, but what happens if the car’s market value is less than the amount you owe the leasing company? This difference is called the “gap,” and you would be responsible for paying it to the leasing company. Some leases provide a “gap waiver” that protects you against such shortfalls if you meet certain insurance requirements, but others do not. Gap insurance covers your liability in leases with no gap waiver. It makes sense to buy gap insurance from the leasing company when you agree to the rest of the lease. 

Option Discount Adjustment 

Car manufacturers sometimes offer special discounts on an option package, and leasing companies often treat these discounts in special ways when calculating residual value. 

For example, the invoice for a vehicle model might show an MSRP of $1,000 for a “power package” and a $600 discount for the package—a net price of $400. The MSRP for vehicles with the power package is $400 higher than vehicles without it. But when this model is leased, the MSRP used to calculate residual value (residual value equals MSRP times residual percentage) will include the undiscounted price of the power package ($1,000) rather than its $400 discounted price. In other words, the $600 package discount is added to the MSRP before residual value is calculated. 

This peculiar piece of bookkeeping is good for you because it means your residual value will be higher—and payments lower—than they otherwise would be. 

Other Lease Language 

Auto leases include a number of other features and requirements, among them— 

  • A security deposit, typically one month’s lease payment rounded up to the nearest $25, is usually due upon execution of a lease. You will get the security deposit back at the end of the lease, unless it is applied to settling excess charges you have incurred. 
  • With a lease, unlike a loan, the first month’s payment is due upfront. Your first month’s payment is part of the upfront amount you pay the dealer at the start of the lease. 
  • Lease plans have stringent “excess wear and tear” provisions, and leasing companies will charge you if they determine that you have exceeded normal wear and tear. Some leasing companies are more demanding than others. 
  • If you do not choose to purchase the vehicle at the end of your lease, some leases charge an administrative fee, usually referred to as a “disposition fee.” 
  • Leased vehicles usually have stringent insurance coverage requirements. You may have to buy more insurance than you would buy on a vehicle you purchased. 

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