In a NutshellMSRP is the price an automaker recommends for a car, while invoice price is how much a dealer pays an automaker for a car. Knowing both numbers gives you an idea of a dealer’s profit margin — and whether you could have an opportunity to negotiate the price.
When you’re buying a new car, you want to get a good price. But which price should you focus on?
Most products that we buy on a daily basis have one advertised, set price. But with car pricing, you may come across a few different numbers, including the manufacturer’s suggested retail price, or MSRP, and the invoice price. And you should pay attention to both.
Let’s take a look a closer look at MSRP vs. invoice price — understanding both prices can help during negotiations. We’ll also look at two more car prices to keep in mind during your car hunt.
- What’s the difference between MSRP and invoice price?
- How can I pay less than the MSRP on a new car?
- Other car prices to pay attention to
What’s the difference between MSRP and invoice price?
The MSRP is the price an automaker recommends for a car. It’s also referred to as the “sticker price,” because you can find it on the sticker attached to each car’s window on a dealer lot.
As its name indicates, the MSRP is a suggestion. Dealers can sell a car at this suggested price — but they can also go higher or lower than the MSRP. The MSRP doesn’t include optional add-ons that could raise the price of the car.
Invoice price is lower than MSRP. It’s the dealer’s cost — the price the dealer pays the manufacturer for the car. Any amount a car dealer sells a car for over the invoice price is usually profit.
How do I find the invoice price on a new car?
There are two ways to find the dealer invoice price on a car.
- Ask the dealer to show you the dealer invoice for the vehicle.
- Look up a car’s invoice price using the Edmunds or Kelley Blue Book pricing tools. Both tools can show a car’s invoice price, MSRP and fair market value.
Keep in mind that the invoice price doesn’t necessarily reflect the dealer’s final cost. Through dealer incentives, rebates and holdbacks (refunds to the dealer), car manufacturers put money back in the dealerships’ pockets that can help pad their profit margins.
How can I pay less than the MSRP on a new car?
There are a few ways you might be able to pay a price for your new car that’s lower than the MSRP.
- Negotiate. A dealer may be willing to negotiate on its profit margin, often by 10% to 20%. The difference between the invoice price and MSRP might help you consider where to start your negotiations.
- Visit more than one car dealership. Shop and negotiate with more than one dealer and compare the prices they’re offering. A dealer may be willing to adjust its price to compete for your business.
- Stay away from high-demand models. If a car model isn’t all that popular, you may be able to negotiate to a price that’s well below MSRP — possibly even closer to invoice price —because dealers want to keep car inventory moving.
Other car prices to pay attention to
While it’s helpful to compare MSRP vs. invoice price, these aren’t the only numbers to know. Here are two other numbers to consider as you negotiate a car purchase.
Fair market value
A car’s fair market value is what it would sell for on the open market. Like MSRP and invoice price, you can find estimates of a car’s fair market value by using Kelley Blue Book and Edmunds. Both provide a car’s estimated fair market value, based on factors like make, model and what other people in your area have paid for similar vehicles.
When negotiating, consider making the invoice price your starting point and working up toward the fair market value.
The out-the-door price is the final price you pay for the car. Depending on the dealer, the out-the-door price may include expenses like car tax, title and registration fees, and dealer charges that don’t appear on the window sticker.
When you’re negotiating, be sure that both you and the salesperson are discussing the out-the-door price. Otherwise, you could end up going thousands of dollars over your budget once taxes and fees are added.
While the price of a vehicle is important, it’s not the only thing to consider before buying a car. Fuel economy, safety and dependability are just a few other factors that you’ll want to include in your decision-making process. For tips on how to evaluate cars based on these factors, check out our guide to buying a new car.