The out-the-door price of a car is the amount you would pay to walk out of the dealer’s door with keys in hand.
Whether you’re a seasoned or first-time buyer, chances are you’ve heard the phrase. The out-the-door price, sometimes abbreviated as OTD, includes all taxes, fees and extras.
If you’re writing a check, the out-the-door price is the amount you would fill in. If you’re taking a loan, the amount you borrow and the out-the-door price would match. The out-the-door price is a single number that typically includes:
-
Sales price of the vehicle.
-
Sales taxes.
-
Registration fees.
-
Title fees.
-
Documentation fees.
-
Dealer-added extras, which are often listed on a window sticker.
-
Warranties, gap insurance and other financial products you agree to purchase.
-
Your trade-in.
The out-the-door price doesn’t include the cost of insurance or the interest you might pay during the term of a loan.
The out-the-door price paints a clear picture of what you’re buying. If you go to the dealership and focus solely on your monthly payment or not paying a specific fee, you may overlook the true price of the car.
Use out-the-door price when negotiating
Car dealers and salespeople are very familiar with the term and what it includes.
When you buy a car, new or used, negotiate in terms of the out-the-door price rather than debating each line item or extra. In the end, you’re writing one check.
You may reach an agreement on the out-the-door price with the sales team and then be handed over to the finance office, which will offer you additional financial products. If you accept them, they’ll be added to the out-the-door price.
Another reason to use OTD in your negotiation is that it can keep temptation in check. Without a full picture of the long-term costs, you might be tempted to finance a more expensive car.
For instance, a $500 monthly payment at 6.61% annual percentage rate means you can finance $21,038 for 48 months — but $29,651 if you stretch to 72 months.
That sounds great until you compare how much interest you would pay: $2,961 vs. $6,348.
How to calculate an out-the-door budget
The calculator below turns a monthly payment into a budget that you can use when you apply for a preapproved loan.
Once you see what your payment can buy, add any cash down payment or the value of your trade-in (making sure to subtract what you owe on it, if anything) to give yourself a ballpark figure for shopping.
Vehicles are rarely advertised at the out-the-door cost. A good guideline is to subtract at least 10% from your shopping budget to allow for fees and taxes.
If you remember nothing else at the dealership, remember your out-the-door bottom line.
This post was originally published on Nerd Wallet
