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Insiders' guide to top 5 car-buying terms

By Lori Soard, Contributing writer
Published On: Dec 20 2011 05:13:52 PM CST
Updated On: Dec 22 2011 01:00:00 AM CST
woman buying car from salesman

iStock/kzenon

Wouldn't it be ideal to go to the car dealer and buy the perfect car at the best price possible?

It is possible, but only if you know what you are doing. Car salespersons can often spot an inexperienced consumer. Those who don't understand the basics of purchasing a car may wind up paying more than someone who knows which discounts to ask for, and how much to expect off the sticker price.

Sites like CARandDRIVER.com and Motor Trade Insider offer long lists of car-buying terms to help familiarize consumers with this process. Thanks to a poll conducted of five different car salespeople, three experienced car buyers and three car dealers, we've compiled the top five terms.

Learn and understand what these terms mean and you will be one step closer to negotiating a better deal on your next car purchase.

cars and trucks for sale at dealership lot

No. 5: MSRP

The "Manufacturer's Suggested Retail Price" or MSRP is also called the sticker price.

This is the amount that the car company estimates their car is worth. This is the full retail amount of the car without any discounts or incentives. Consumers should have the goal of never paying the full MSRP for a car. There are almost always discounts available on a car.

"Never, ever pay sticker price for a new car," said Ronald Kuykendall, a Henryville, Ind., resident who has purchased a new car every two years for the last 50 years. "You can always get a discount. Just ask for it."

In fact, NewCars.com suggests that market price is a better reflection of the actual price a consumer should pay for a new car. You can even order reports that will show you the average cost paid for a new car just like the one you're looking at. Such services are either free or cost very little, but can save you thousands of dollars.

Knowing how much someone else paid for the same car is a valuable bargaining tool.

car buying

No. 4: Dealer invoice price

The dealer invoice is how much the dealer paid to the manufacturer for a particular car. Most dealers guard this information carefully, because they are in the business of making a profit on the cars they sell.

Having an idea of the dealer invoice price can provide car buyers with a valuable bargaining tool.

Many consumers don't realize there is a separate invoice showing what the dealer paid. Simply knowing this car-buying term shows the car salesman that you have done your research and are aware of the information you need to get the best deal possible.

Even though this price will give you a good idea of where to begin bargaining, it still does not completely show what the dealer paid for the car as there are holdbacks, rebates and other fees that apply.

lineup of Ford pickup trucks on car dealership lot

No. 3: Factory incentives

Factory incentives are offered directly from the manufacturer to the consumer.

These are often offered in the form of a certain dollar amount off the purchase of a particular car or model of car. The incentives might be in the form of $1,500 off a new car or in the form of a reduced interest rate on the financing of the car.

Most dealers make it clear what factory incentives are currently available, because it can help convince a buyer who is sitting on the fence about whether or not to purchase a new car. What might be of great benefit to you is to ask the salesperson what the different incentives are, which one is best and compare the amount you'll save on different car models.

"Don't let the car dealer convince you that this money is coming out of their pocket," Kuykendall added. "This is bonus money provided by the manufacturer. Dealer incentives are a separate offer."

Cars at dealership

No. 2: Option packages

Understanding the different options available on a car and how those options are packaged together can be tricky even for an experienced car buyer.

This is one area that car salesmen across the board indicated could be used by consumers to get more bang for their buck. The bigger the package, the more savings on the car.

The best way to see if you are getting the best deal possible and not just being drawn in by all the flash of those shiny, sporty wheels and the four-wheel drive is to make a list beforehand of the items you can't live without.

Next, compare the cost of the car you want with just those must-have features versus the cost of the car with a package that may include the features you most want plus a few others. If the price is similar, it might be worth buying an upgraded package.

car salesman handing woman key to new car

No. 1: Dealer holdback

Edmunds.com defines dealer holdback as a "percentage of either the MSRP or invoice price of a new vehicle (depending on the manufacturer) that is repaid to the dealer by the manufacturer."

All of these incentives can hide the actual cost that a car dealer pays for the car. Even experienced consumers may have a hard time figuring out the actual cost the dealer paid for a vehicle. In addition to Edmunds.com's True Market Value, TrueCar is another service that is available to consumers to help determine the possible bottom line number.

According to company spokesperson Lisa Hendrickson, TrueCar.com is the only website that "guarantees a low price to the consumer and gives them a certificate that they can bring to the dealer so they don't have to haggle."

When you're looking to get the best deal possible, also consider the time of year. Remar Sutton, author of "Don't Get Taken Every Time," advises that Christmas is a good time to buy a new car.

"Most people's minds are on other things at Christmas time, and many dealerships' sales drop dramatically. Managers are more inclined to take small profits during this time." When a new model year is released, you can also buy the last year's models, although still brand new vehicles, at a reduced rate, Sutton said.

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