April 3, 2019

Average Car Price

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Plan on spending over $35,000 for a new car and letting the dealer earn as much as a 6% profit on your purchase.

While you can negotiate the price of a new car, dealers need to make at least the invoice cost of a car, or at least that's what they make you think. While you may hear that the dealer is "giving you the car," in reality, they make something—they just don't disclose it to you.

Keep reading to learn more about buying a new car and the terms you should know to make yourself a knowledgeable buyer.

The Average New Car Purchase

Average Price of a New Car
The average price of a new car is $36,270.

This is an almost 4% increase in just one year. The increase is in large part due to an increase of SUV and truck purchases versus car purchases.

Average Markup on a New Car
According to the National Automobile Dealers Association, the gross profit on new vehicles is around 5.9%, which is a 0.02% decrease from the previous year.

The average gross profit dealers make on a car is $2,014

Average Price of a Luxury Car
Luxury cars have higher price tags, as you probably guessed. The mid-size luxury sedan sells for an average of $55,000, but the flagship models have average prices near $100,000.

Most Affordable New Car
According to Kelley Blue Book, the most affordable new car is the Toyota Yaris iA. They based this information not only on the cost of the car itself, but on the cost ownership of the vehicle over a 5-year period.

Negotiating the Purchase

How Much to Negotiate
Each dealer has a different threshold for negotiation. On average, though, you should target a price 2% above invoice, as that's as low as many car dealerships will go on a deal.

Should You Pay MSRP for a New Car?
No, you shouldn't pay MSRP for a new car, but dealerships are going to do their best to get you to pay just that. You can think of the MSPR as the dealer's "target price."

Invoice vs MSRP
Dealers throw around these two terms quite often, so it's good to know what exactly they mean.

  • Invoice Price: The price that the dealer paid to get the car (or at least that's what the dealer wants you to think).

  • MSRP: The price you see in the window when you go to a dealership. This is the price dealerships want you to think that the car costs for you to buy.

You Should Know: When the dealer sells the car, the manufacturer gives them a percentage of the cost of the car. Even when dealers say they aren't making anything on the sale of a car, they are—it's just not disclosed.

Can Dealers Charge More than MSRP?
Technically, a dealer can't charge you more than the MSRP, but you may end up paying more than that once the tax, title, and insurance fees are tacked onto the price.

If you want to make sure you don't walk out paying more than the MSRP, negotiate an "out the door" sales price so that you don't pay more than the MSRP.

Best Negotiating Tools
Before you even head to the dealership, you should consider using Kelley Blue Book or Edmunds to find out the True Market Value. This is the number you should aim to get the dealer to agree to, as it's in between the MSRP and invoice price.

The True Market Value is the average price people in your area are paying for the specific car you want at any given time.

The Average Car Loan

Average Loan Size
The average size of a car loan for a new car is $30,024. The better your credit, the less you're likely to borrow, which means the less you have to pay back in the end.

Your credit score will place you in a credit tier, which will be used by dealers to determine your APR and monthly payment.

 Credit Tier Credit Score 
Super Prime740+
Prime680 - 739
Nonprime620 - 679
Subprime550 - 619
Deep Subprime≤ 549

Super-Prime Borrowers borrow an average $27,754.
Nonprime Borrowers borrow an average $31,566.

Average Car Payment
The average car payment on a new car is $504. Just like with the total loan, better credit usually equates to lower payments.

Super-Prime Borrowers have an average payment of $477.
Nonprime Borrowers have an average payment of $524.

Salary Percentage
Many experts agree that you shouldn't spend more than 10% of your take-home pay on your car payment. If your take-home pay is $5,000 per month, your car payment shouldn't exceed $500 per month.

How Much of a Down Payment
According to Edmunds, the average person makes a 12% down payment on a car, despite the highly recommended 20% down payment.

A 20% down payment helps to offset the depreciation a car experiences during the first year of ownership, but putting down as close to 20% as possible will help your case.

Monthly Cost of Car Ownership
The cost of owning a car is more than just what you pay for the loan. You have to consider the depreciation, maintenance, fuel, repairs, and insurance.

According to AAA, this cost is an estimated $8,849 per year, or $737 per month.

You'll also want to pay attention to if your new car comes with a free SiriusXM radio trial. Once it ends, you'll have to pay monthly for it, so check to see if there are current SiriusXM deals before you commit.

The Best Way to Buy a New Car

Best Month to Buy a Car
December is the best month to buy a new car. Dealerships use this time to try to push the "old" models off the lot in order to make room for the latest models. If you can't wait until December, at the very least, buy a car at the end of a month (close to a holiday, if you can).

Salespeople have quotas to meet and will be more likely to wheel and deal when they need that extra sale. You can negotiate a bit more because of this.

Better Price with Cash?
Many dealerships don't care how you pay them—they'll take cash or financing and charge you the same price.

In fact, if you pay cash, you take away from some of the earnings the dealership makes when you finance a car. If you are going to pay cash, you may want to keep that detail to yourself until you get to the financing portion of the process.

Fun Facts About Buying a Car

How Much was a New Car in 1970?
In 1970, the average car was $32,727 less than today, which makes the cost just $3,543.

What is the Average Price of a Used Car?
The average price of a used car is $19,657, a 13% increase from 5 years ago.

Which New Car has the Best Gas Mileage?
The 2019 Hyundai Ioniq Hybrid offers the best gas mileage for new cars in 2019. It earns 57 mpg in city miles and 59 mpg in highway miles.

What is the Average Monthly Cost of Insurance?
The average driver spends $81 per month on car insurance, or $982 per year.

Bottom Line

Give it some careful thought before you decide to buy a new car. Sometimes buying a used car in good condition will save you more money, but if you have your heart set on a new car, you'll know what to expect. Do your homework and negotiate and/or shop around to make sure that you get the best deal possible.

Write to Kim P at feedback@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.

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