Cars Are Still Selling Above MSRP. Here's What That Means for Your Auto Insurance

It's hardly a secret that buying a new car is an expensive prospect right now. Any time a given commodity is in short supply, its price has a tendency to rise. And that puts car buyers in a tough spot.

A new iSeeCars study found that vehicles are continuing to be priced well above MSRP even as supply picks up a bit. In fact, the average new car today is priced 8.8% above MSRP.

The more money you spend on a vehicle, the more expensive your car payments are apt to be. And you should be aware that auto loan rates are up right now, so the payments you end up with may be a stretch for your budget.

But paying more for a car could also mean having to spend more on auto insurance. So you'll need to do some serious number-crunching to make sure you can swing a new vehicle purchase after all.

An expense that might prove difficult to keep up with

Auto insurance can be expensive no matter what. But a costlier car is apt to cost you more to insure.

Auto insurance companies take different factors into account when setting premium rates. They'll evaluate your driving record as well as your credit score (believe it or not), and they'll also consider the cost of your vehicle itself. The logic there is that new cars tend to come with more expensive components than used ones. And the more high-end your vehicle, the more costly it might be to fix or replace parts.

That's why you'll need to be really careful when buying a new car. It's not just that paying above MSRP might hurt you from an auto loan perspective. You might also get stuck paying more than you want to for car insurance.

Should you stick to a used car instead?

Used car prices were down 11.2% in March, according to that month's Consumer Price Index. Buying a used car could mean having lower monthly auto loan payments and spending less on auto insurance.

But there are benefits to buying a new car. For one thing, new vehicles commonly come with a warranty that protects you from having to shell out money for costly repairs early on. And also, you might enjoy the feel of a new vehicle -- and if it's something you can afford, why not treat yourself?

But before you buy a new car, crunch the numbers to see what you can afford to spend. And also, factor in the cost of higher auto insurance so that expense doesn't catch you off guard.

Finally, think about what your car usage looks like. If you mostly work from home and only take a car out once or twice a week on errands, then springing for a new car at today's prices may not be worth it. Rather, in that scenario, you may be better off with a used vehicle. And in that situation, it's also worth letting your auto insurer know that you don't use your car for commuting. You may be able to snag a discounted rate for low usage.