When you head to a car dealership and start looking at the window sticker for cars that catch your eye, you may be confused by the many different prices you see listed. One of those, the MSRP, is an important figure for your future car purchase negotiations.
MSRP, or Manufacturer Suggested Retail Price, is the recommended selling price slapped on a new car from the manufacturer. While it is often displayed as the car's "price," it is not the same as a price tag on a pair of shoes at your favorite clothing retailer. You should view the MSRP as the starting point for negotiations, but understanding its full meaning is critical as you shop for a car.
So what does MSRP mean, exactly?
The key to understanding MSRP is understanding the second word of the acronym – suggested. This sticker price is what the manufacturer suggests the dealerships sell the vehicles for, but it is in no way an obligation. It also does not reflect the entirety of what the dealership paid for the vehicle. The MSRP often has quite a bit of wiggle room.
Because of this wiggle room, you may see asking prices above the MSRP for a hot, high-demand vehicle. In times when vehicles are selling slowly, the price may be well below.
Sometimes, buyers get confused between the MSRP and the vehicle's "base price." The base price is the price for the vehicle with no options. Most vehicles seen on dealership floors have options, which is why there is a big disparity between the base price and MSRP. If the vehicle is not the lowest level trim, the MSRP will be higher than the base or "starting" price of the vehicle.
What is NOT included in the MSRP
To fully understand the MSRP meaning and how it relates to the cost of your vehicle purchase, you must also understand what it does not include. There are four particular costs that are not included that can change the price of your vehicle. These are:
- Invoice price – This is what the manufacturer charges the dealership for purchasing the vehicle. Only in rare instances with cars that haven't moved for months will a dealership allow you to pay less than the invoice price.
- Destination charge – This is how much it costs for the dealership to move the car from the factory to the lot.
- Registration fees – This is a state-based charge for owning a car.
- Tax – If there is a sales tax on vehicle purchases in your state, the MSRP will not show this.
Because of this, MSRP is not the bottom line of what you will pay. Even if you negotiate below MSRP, your final out-the-door cost may even be higher.
How should MSRP influence how you negotiate car prices?
Understanding what MSRP does and does not include will help you negotiate a fair price for the vehicle. Once you know the MSRP, consider the supply and demand of the vehicle. If the dealership has a lot of that particular vehicle on hand, and the vehicle is not in high demand, they may be willing to negotiate below the MSRP. Some prices end up as much as 20% less than MSRP. However, for vehicles in high demand or that are brand-new to the market, dealerships are often unwilling to budge on the MSRP. Another circumstance to keep in mind is If you are looking to purchase a car in a market where there is a shortage of cars and the demand is still high, you may actually end up paying OVER the MSRP, with little to no room for negotiation. Therefore, it is important for you to take some time to look into current market conditions so you know if negotiating the MSRP is possible.
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What impact does MSRP have on your car loan application?
The MSRP is a helpful tool to direct your application for financing, though it's not necessarily the final price you will pay for the vehicle. However, it's a good starting point for your loan application. If you know that the MSRP of the vehicle is $25,000, you can apply for a $25,000 loan through your lender. Even if you pay a bit more or a bit less after negotiating the purchase, you can head to the dealer with confidence that you have financing.
In addition, some lenders may hesitate to lend more than the MSRP of the vehicle. If your dealership is charging a much higher price, you may struggle to get full financing for the purchase. Having a larger down payment can protect you from this.
Ultimately, view MSRP as a starting point for your negotiations. Keep in mind that you will have to pay additional fees, like tax, title, and license, in order to drive away with your new vehicle. Know that it might have a minor impact on your car loan. By starting the vehicle shopping experience with a clear understanding of MSRP meaning, you can get a fair price on a vehicle that fits your needs.
For more details on the MSRP meaning and more tips to save you time and money on your car buying journey, review our "Car Loans 101: Car Buying Made Easy" complete guide!
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