WHY YOU CANNOT AFFORD TO OVERPAY FOR A VEHICLE—LITERALLY
In today’s hot car market, emotions and urgency can often cloud judgment. Whether it’s a limited edition truck, a highly sought-after SUV, or simply the only car available at the dealership, many consumers find themselves tempted—or pressured—to pay above market value. But when it comes to vehicle financing and insurance, there’s a harsh reality: you cannot afford to overpay for a vehicle… because no one else will treat it as “special” but you.
The Lender Does Not Care If You Overpaid
When you finance a vehicle, your lender will typically approve a loan based on the car’s Loan-to-Value (LTV) ratio. That value is calculated using independent sources such as NADA, Kelley Blue Book, or Black Book. If you are paying more than that benchmark value, lenders may refuse to finance the full amount—or charge you a higher interest rate to offset their risk. Typically, the most a lender will lend is 120% Loan to Value.
What does this mean for you?
• You may be required to put down a larger down payment.
• Your loan may be underwater the minute you drive off the lot.
• Your financing may not even get approved for the full price.
In short, your emotional or situational overpayment may be a red flag to the very institution you need on your side.
The Insurance Company Sees One Thing: Actual Cash Value
Now let’s talk about what happens if the car is stolen or totaled.
Regardless of how much you paid for the vehicle—or how “special” the dealership claimed it was—your insurance company is going to base your payout on the Actual Cash Value (ACV) at the time of loss. This is the market value of the car, factoring in depreciation, condition, mileage, and market comparables.
If you overpaid, you may be in for a rude awakening:
• You could owe thousands more on the loan than the insurer will pay.
• You may have to keep paying for a car you no longer have.
• Your “special” vehicle will be treated just like every other one of its make and model.
GAP Insurance Can Help—but It’s Not a Get-Out-of-Jail-Free Card
If you did overpay or are financing with a small down payment, GAP insurance (Guaranteed Asset Protection) can help cover the difference between your car’s ACV and what you still owe on your loan in the event of a total loss.
However, GAP insurance doesn’t protect your investment—it protects your lender. And it usually won’t help you recoup any additional out-of-pocket payments you made upfront (like paying over MSRP or adding expensive dealer markups).
Emotional Value vs. Market Value
There’s nothing wrong with wanting a specific vehicle. But that emotional value—whether it’s due to aesthetics, scarcity, or brand loyalty—will not be shared by your lender, your insurer, or the used car market. These stakeholders rely solely on objective market data.
In fact, paying extra for “uniqueness” is likely a financial liability in the long run.
Final Word: Let the Numbers, Not the Hype, Guide You
Before you sign a sales contract for any vehicle, especially one with a hefty markup, ask yourself these questions:
• What is the actual market value according to NADA or KBB?
• What will my lender approve based upon the LTV ratio?
• What will my insurance company pay if the car is totaled or stolen and not recovered tomorrow?
• Is the extra cost really worth it, or am I setting myself up for a financial hit?
If the answer to that last question is shaky, walk away. Cars depreciate. Emotional decisions don’t. And in the real world of finance and insurance, you can’t insure enthusiasm—you can only insure value. Think about it.
