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Factors that Affect The Purchase Price of the Vehicle

It’s important to understand what affects the eventual Purchase Price of your car.
A dealer makes money on every aspect of the car sale.

You can expect a markup on the price of the car on each additional service they perform for you, on any additional accessory you add to the car, on any loan you get from the dealership, on your trade-in, and on any extended warranty or car insurance you buy from them. Such is the nature of the business.


At the end of a car negotiation, many dealers are willing to part with a car for a typical profit margin of $1,000 (lower end) to $1,500 or higher.

Factors That Affect The Purchase Price Of Newer Cars
Newer cars which are in hot demand are not likely to sell for less than invoice. For cars with a waiting period, many are sold at MSRP (or more). As a guide, cars which spend 0-40 days on the floor tend to sell at or near MSRP, 40-80 Days on the lot at or near the official Invoice Price, and vehicles that spend greater than 80 Days on the lot can often be purchased for lower than the official Invoice Price.

Your gender and age group
Your gender and age group may also influence how the dealer negotiates the car price with you. This negotiation will ultimately determine the price you pay for the car. Young adults, women, and minorities statistically pay more for the car than adult men. This disadvantage in buying a car can easily be addressed by first getting car quotes online, and discussing the quotes with the dealers over the phone.

Trade-ins
Trade-ins affect the price you pay for the new car. Always research your car's trade-in value before going into the dealership. Dealers are usually willing to give you a better price if you indicate to them that you are considering trading in your old car. Go to kbb.com to calculate your old car's value.

Time of month
The time of month also determines the motivation of the dealer to sell you the car. Since car sales people have a monthly quota with rewards for good performance, they are more motivated to settle for a smaller margin towards the end of the month. The dealer stands to get rewards from the manufacturer if the dealership sells a certain number of cars. Of course it is recommended that you don't wait until the end of the month to start the car buying research. Be ready when the time comes.

Days supply of inventory
The "days supply of inventory" for the dealership also determines the dealer's motivation to move cars from his lot. The more cars the dealer has on his lot, the more eager the dealer is to sell the cars. The auto manufacturers usually start pressuring dealerships to start moving their inventory when their inventory gets high.

Dealer margins
Dealers prefer making larger margins per car sold, rather than making smaller margins and selling more quantities of cars. As there are many people who don't know how to negotiate and buy cars, car sales people always try their best for bigger margins.

Car loans from dealers
Dealerships are more willing to give you a bigger discount if you get a car loan from them. If you get a pre-qualified loan before going to the dealership using online loan sites or your bank’s website, some dealerships may match (or beat) your rate. When that happens the dealer stands to make some money from the loan, and pass some of these savings to you.

Payment or price buyer
What type of a buyer are you: monthly payment or total price buyer? Dealers prefer selling you on the monthly payment model. It is possible for the dealer to keep the monthly payment the same and yet sell you a car at a higher price. If you are planning to be a payment buyer it is very important that you understand how this payment pricing works with different interest rates. We recommend that you conduct all negotiations on the various prices first before looking to get a loan from the dealer. Getting a pre-approved loan elsewhere and having the dealer meet or beat it is a great approach to get the most out of the car purchase.

Your financial standing for the car loan
Ideally dealers are looking for 600 to 700 FICA rated customers. These loan customers command a premium over customers rated 500 (poor financial rating), or customers near 800 (a perfect financial rating). The buy rate and sell rate of the loan enables dealers to make extra profit.

Accessories
Always shop around for any car add-ons you may want to install in the car. If not negotiated effectively with dealers, you can pay 2-3 times more for accessories (such as alarms, sound systems, automobile undercoating, spoilers, stain guarding, etc.) than what you would have to pay elsewhere. Being prudent means finding out costs of any accessories you want before going into the dealership. The dealer is very likely to match the outside pricing, after they find out that you have done your homework.