What is MSRP?
MSRP stands for Manufacturer’s Suggested Retail Price. It is the price a manufacturer recommends a retailer charge for a product. MSRP is also known as list price or suggested retail price (SRP).
The Manufacturer’s Suggested Retail Price (MSRP) is the starting point for negotiating the price of a new car. It’s also known as the sticker price. The MSRP is not necessarily the price you’ll pay for the car. Rather, it’s a guide for dealerships to use when they’re setting their prices.
How is MSRP used in auto loans?
MSRP, or Manufacturer’s Suggested Retail Price, is the starting point for negotiation of a new car’s price. The dealer usually adds a few thousand dollars to the MSRP to arrive at the car’s selling price. Some lenders use the MSRP to calculate your loan-to-value ratio (LTV), which is the loan amount divided by the value of your collateral. A higher LTV raises your risk level and may result in a higher interest rate on your auto loan.
What are the benefits of using MSRP in auto loans?
There are a few benefits of using MSRP when it comes to auto loans. Firstly, MSRP can act as a guide for both the buyer and the seller. It gives the buyer an idea of how much the car is worth and how much they should be willing to pay for it. For the seller, MSRP provides a target price that they can aim for when selling the car. Secondly, MSRP can help to reduce negotiation time and effort. By having a set target price, both parties can avoid haggling over price and instead focus on other aspects of the deal, such as trade-ins or financing options. Finally, MSRP can provide some protection for the buyer against overpaying for a car. If the selling price of a car is significantly above MSRP, it might be an indication that the seller is trying to take advantage of the buyer.
What are the drawbacks of using MSRP in auto loans?
There are a few potential drawbacks to using MSRP in auto loans:
- The MSRP may not reflect the actual selling price of the vehicle. This can lead to a higher loan amount than necessary, and increase the risk of being upside down on the loan (owing more than the vehicle is worth).
- The MSRP does not take into account any dealer discounts or rebates that may be available. This means that you could end up paying more for the vehicle than you would have if you had used a different pricing method.
- Manufacturer suggested retail prices can change from year to year, and even model to model, so it can be difficult to compare apples to apples when shopping for a new vehicle.
Based on our findings, we recommend that you avoid financing your car purchase through a dealership. The interest rates are higher and the terms are not as favorable. It is better to get a loan from a bank or credit union. If you do finance through a dealership, make sure to shop around and compare offers before signing anything.