Paying Up for a Car? Prepare for a Larger Insurance Bill

Car prices are soaring. But buying an expensive vehicle could cost you in more ways than one.

The supply chain issues that have plagued the U.S. economy for months on end seem to be easing up in many regards. But there's one commodity that's still in short supply to this day -- chips. And that's limiting output across the auto industry and leaving consumers with fewer choices on the new car front.

Now any time there's a shortage of a given product, its price tends to rise. And that's what has been happening in the auto industry.

But it's not just that cars are costing more -- it's that consumers are willing to pay an even greater premium to snag one. These days, a good 82% of vehicle buyers are paying above sticker price for a new car, reports Edmunds.com. That's a massive jump from the 2.8% of consumers who were paying above sticker price a year ago.

Meanwhile, the average amount consumers are paying for a new car is $45,717. That's $728 more than the average manufacturer’s suggested retail price of $44,989. To compare, a year ago, the average new car purchase came to $2,152 below MSRP.

Higher auto loan payments and more

Many consumers can't afford to purchase a new vehicle outright. That's what auto loans are for. But by paying up for new cars, consumers are also taking on more debt at a time when living costs are inflated across the board. And the fear is that some people may be getting in over their heads and taking on expenses they can't afford.

Read more: 5 Mistakes to Avoid When Getting an Auto Loan

But a more expensive car doesn't only mean higher auto loan payments. It can also mean having to spend more on auto insurance.

As a general rule, the more a car costs, the more expensive it will be to insure. That's because a vehicle worth a lot of money will generally cost more to repair or replace. If you're already looking at stretching your budget to swing the cost of a new car, you may want to run some numbers and make sure higher auto insurance premiums fit into your budget, as well.

Does it pay to buy a new car?

Unlike homes, which tend to gain value over time, cars tend to lose value over time. In fact, new cars lose a large chunk of their value the moment you drive one off the lot.

That's why you may want to consider purchasing a used car instead. A used car may not have the same bells and whistles as today's newest models, and it may even show some cosmetic signs of wear. But if you find a used vehicle that's safe and reliable -- something a pre-purchase inspection can confirm -- then it could end up being a more sound financial choice given the cost of a new car today.

Plus, you may end up spending less on auto insurance by going the used car route, especially if you take the time to shop around with different insurance companies. At a time when life has gotten expensive, every little bit of savings can go a long way.