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A 2014 survey by Edmunds.com found that people consider shopping for a car more stressful than planning a wedding. More recent studies show consumers would rather be stuck in an elevator than spend an afternoon in a car dealership. The stress consumers feel can be caused by the different “unknowns” in the car buying process.
Below, we will cover some common terms and phrases you will likely hear or see when shopping for a new vehicle. Understanding what they mean and how they are used will help as you search for a new car.
Manufacturer’s Suggested Retail Price
Commonly shortened to “MSRP,” this number is found near the bottom of the window sticker (it might appear in a bolded or highlighted box). The MSRP includes the standard vehicle price (i.e., without options), the pricing of optional features and packages, and the destination and handling fee. It does not include factory rebates or other incentives.
Dealers can sell vehicles at or above the MSRP, though it is rare (and some manufacturers will even warn dealers against doing so). Muscle cars, like the Shelby Mustang and specific versions of the Dodge Challenger, may fall into this category.
MSRP is used interchangeably with phrases like “retail price” or “sticker price.” You can negotiate from the manufacturer’s suggested retail price, though it is not always the best course of action. Obtaining the invoice price is sometimes thought to be a better strategy.
What Is The Invoice Price?
Invoice prices are the amount the dealer pays for the vehicle. It’s sometimes called “dealer cost” in the car business. When an automaker ships a new car from the factory to the lot, the dealer is given a bill (or an invoice). The invoice price generally represents the lowest possible number as a starting point for negotiations during the car buying process.
Below, we will briefly cover the difference between MSRP and invoice price, but will also suggest this more comprehensive guide on the topic. That guide speaks more specifically to why invoice price is essential, how to find it, and how to use it to your advantage when you are negotiating the price of a new vehicle.
Our recommendation is to ask politely for the invoice price as part of the negotiation process.
Why The Invoice Price Is Important
If you can see what the dealer paid, you can “negotiate up” from the invoice price rather than “negotiate down” from the MSRP or sticker price. If you can obtain the invoice price or dealer cost as a starting point, you may find it helpful as you negotiate.
Generally speaking, if a sales consultant is paid on the gross amount of each individual vehicle they sell, there is more incentive for them to keep you near the MSRP for a more significant profit margin. By doing so, they will make a higher commission and the dealer more money. This is partly why car buying can feel like a battle, as consumers and the dealership are immediately pitted against each other.
If the dealer shows you the invoice price, you may feel the ball is more in your court when you negotiate. However, since there is no guarantee a dealer will reveal what they paid for a vehicle, doing thorough research is still your best bet. Through Automoblog, we provide this free and easy search tool that will show you which dealers in your area are advertising the best price. Knowing what different dealers are offering in your area can play in your favor when negotiating.
Factory Rebates
Every customer is entitled to the current factory rebates, which the dealer subtracts from the MSRP. Rebates come in all shapes and sizes, so it’s best to check the manufacturer’s website for the most current incentives. You may also qualify for other rebates, like military service, college student/recent grad, or if you are a first responder.
Conquest rebates are also popular and include extra money if you switch brands via trade-in (like trading in a Ford for a new Chevy, a Toyota for a Honda, a Mercedes-Benz for a BMW, and so on).
A common misconception is that dealers somehow lose money by applying rebates, which isn’t true. The automaker guarantees rebates, so double-check to ensure you get the correct amount taken off the purchase price. Some dealerships will even have a giant marker board on the showfloor outlining the current rebates and incentives.
Can I Get a Better Rebate at Another Dealer?
Factory rebates can and do vary by region, so it might be tempting to search farther from your home. However, you usually have to take the rebates that apply to where the new car will be registered (i.e. where you live), not where it’s purchased. If you plan to search farther from home for a new vehicle, visit the manufacturer’s website and enter a zip code to see their current rebates for that region.
For example, here in Detroit, Michigan, as of October 2023, a new Ford F-150 is eligible for 3.9 percent APR for 60 months through Ford Credit with up to $3,000 in additional rebate money. The Omaha, Nebraska area, by contrast, has the same financing offer but with $3,250 in extra rebate money. In Houston, Texas, the same financing offer is available through Ford Credit, though residents in that area receive less bonus and customer cash than those in Detroit and Omaha (if we check these rebates again in the near future, there is a good chance they will be different).
Getting a better price at a dealership further away from home will have less to do with a factory rebate and more to do with how that dealership operates as an independent business. Some dealers might offer a little extra discount if you are traveling in from out of state to buy a vehicle, especially if it’s something that has been sitting on their lot for a few months. If you are willing to take it off their hands, they might be more generous than usual with the discounts.
What Does F&I Mean?
This is an acronym for Finance and Insurance, but it’s less of a term and more of a separate process. Internally, this is sometimes known as the “hand-off” phase of the deal. It means the sales consultant has sold the car; now it’s time for another staff member to take over the process. Those staff members are F&I managers, and they are responsible for this part of the transaction. F&I managers handle the credit apps if you are financing and help you sign all of the paperwork at the end.
Going Through The F&I Process
F&I managers will likely present you with optional “add-ons.” This can include window tint, rear-seat entertainment systems, fabric protection, window etching, and various other accessories, like a tonneau cover if you are purchasing a truck.
Truck accessories are one thing, as there is usually an element of styling and functionality, but otherwise, very few add-ons presented at the dealership are essential (you can avoid things like “rust proofing” the undercarriage, for example).
If you opt for additional accessories or add-ons, consider paying for them in cash. During the F&I process, there is a natural assumption that everything will go into the loan unless you say otherwise. If you want a few extra accessories for your new vehicle, there is nothing wrong with that; just don’t pay on them for the next 60 months.
Extended Warranties: Yes or No?
The most common item you will see during the F&I process is an offer for an extended warranty, sometimes called an extended service contract. Schools of thought vary on extended warranties, so take everything with a grain of salt, thinking more about your personal situation than anything.
While not a hard and fast rule, an extended warranty might benefit you if you drive a ton of miles each year or plan to keep the vehicle for longer than five years. If not, you are probably okay with the standard factory warranty. A good F&I manager will get a sense of how much you plan to drive the new vehicle and present options accordingly.
Even if you are interested in an extended warranty, you don’t have to purchase one through the dealership. There are third-party companies that offer extended warranties. Still, it’s important to research those companies ahead of time, looking up customer reviews and even consulting the Better Business Bureau. If you have questions about an extended warranty, here is a list of the top 10 extended car warranty companies.
Auto Loan Rate Comparision Tool
It’s a good idea to secure your own financing before you visit the dealership. The calculator below will help get you started.
Original article: Invoice Price, Rebates, Extended Warranties, F&I: What They Mean & How to Understand Them
