How Much Over MSRP Should You Pay for a Car?

How Much Over MSRP Should You Pay for a Car?

Since the COVID pandemic, the experience of buying a new vehicle hasn’t been the same. While some car brands are seeing inventories return to pre-pandemic levels, others are still struggling with supply. These issues, coupled with inflation and high interest rates, have many customers faced with the fact they need to pay over the manufacturer’s suggested retail price (MSRP) to get a new vehicle. When visiting the dealership, make sure you understand MSRP, and the potential pitfalls of going above it.

What Is MSRP?

Manufacturer’s Suggested Retail Price (MSRP) represents the price that the manufacturer recommends or suggests for the sale of a new vehicle to consumers. It serves as a starting point for pricing negotiations between car manufacturers, dealerships, and consumers. While it provides a suggested price, the actual selling price can vary due to factors such as market demand, dealer markups, discounts, incentives, and negotiation skills. 

The Dangers of Paying Over MSRP

While it’s understandable why some people would choose to pay above MSRP to get a new vehicle, there could be long-term implications. Please consider the following before spending too much money on your next vehicle.


No matter how much someone is willing to pay for a new vehicle, they will ultimately have to deal with its depreciation. Depreciation is how much value something loses over time. 

Although estimates vary, according to auto insurer Progressive, many cars will lose up to 20% of their value within the first year, and approximately 15% more per year until the four-or five-year mark. In addition, Ramsey Solutions estimates that a car depreciates in value by up to 11% as soon as someone drives it off the lot!

Paying above the MSRP does not affect depreciation. Effectively, the buyer loses the premium that was paid because in most cases they simply won’t be able to recoup it when reselling or trading in the vehicle.  

Limited Financing Opportunities 

Even though you may want to offer more than the MSRP, you may not be able to do that if a lender is involved. Since auto loans use the vehicle as collateral, i.e.,  something of value the lender can seize if the borrower defaults on the loan, lenders typically only let you borrow up to the vehicle’s market value.

If you find yourself in this situation, one alternative could be to take out an unsecured or non-collateralized personal loan. You can use a personal loan to buy a car or anything else, and unlike auto loans, unsecured personal loans do not require collateral. 

Upside Down on Your Loan

Even if you get a loan, rapid depreciation may put you in a position where you’re upside down on your loan. Being upside down is when a borrower owes more money to a lender than the asset is worth. 

Being upside down on a loan is not a place you want to be. If you were in an accident or sold the vehicle, there would be a gap between what you receive from the insurance proceeds or a buyer and what you still owe to the lender.

Insurance Won’t Cover What You Paid

If your vehicle is involved in an accident and is totaled, the insurance carrier will likely only pay its current market value. Again, this creates a situation where you owe your lender more than the insurance proceeds provide .

You May Sacrifice Your Other Financial Goals

In order to pay above MSRP,  you’ll have to pull those extra financial resources from somewhere . This could mean reducing retirement contributions or your monthly expenses. You’ll have to ask yourself if those sacrifices are worth paying more just to have the vehicle you want.

The Bottom Line 

Amid the current challenges in the car-buying market, where paying over the Manufacturer’s Suggested Retail Price (MSRP) is common due to supply chain disruptions and other factors, it’s important to consider the potential drawbacks. Paying above MSRP doesn’t shield your investment from depreciation, limits financing options, and can lead to an “upside-down” loan. In these circumstances, making well-informed decisions about your vehicle purchase is essential for both immediate satisfaction and long-term financial stability.


Notice: Information provided in this article is for information purposes only and does not necessarily reflect the views of [publisher] or its employees. Please be sure to consult your financial advisor about your financial circumstances and options. This site may receive compensation from advertisers for links to third-party websites.

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