Understanding Car Depreciation

Every thing in life ages. Depreciation is the term used to describe cars’ aging process. Depreciation, or more precisely, is the difference in what your new car is worth compared to what it was worth five years ago.

Used cars are more affordable than newer models due to car depreciation. It happens quickly: your car will lose several thousand dollars as soon as you take it off the dealer’s parking lot.

How much do cars depreciate?

In a flash, new cars can depreciate. According to Dave Ramsey, a finance expert, your car’s value will drop between 9 and 11% within a minute of you driving it off the lot. Your car’s value will drop by 20% within the first year of ownership.

It is more complicated than that. There are many factors that influence how much your car will depreciate. Depending on what kind of car you drive, and how you care for it, the depreciation could be lower or higher in the first year.

New Car Depreciation

New cars are more likely to depreciate faster than older models, so this is something you should consider when deciding whether to purchase new or used. There are many benefits to buying a new car. A majority of new cars come with a substantial manufacturers warranty. This means that you can rest assured that your car has not been used by someone else.

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Leasing your car is a great way to have a brand new vehicle. You can return the vehicle to the dealer, or buy it at a lower price, once it has reached an age that may be showing depreciation.

Depreciation of used cars

Although used cars don’t depreciate as fast as new ones they lose value over time. According to Carfax, cars lose approximately 10% each year from the second to fifth years.

If you’re trying to save money, buying a second-hand two-year-old model may be a good option. The car is still close to new but the price could be 30%-40% lower than a new one.

You are purchasing a car that has two years worth of wear and tear. If the car is private, it is a smart idea to have it checked out by a reliable mechanic.

How do you determine the true value for a used car? You can get a good idea of the true value of a used car by looking online at websites such as Carfax’s historical-based value tool as well as websites such as the Kelley Blue Book or Edmunds.

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What causes depreciation?

The wear and tear your vehicle experiences while being driven causes depreciation. The daily commute on roads and in cities can cause wear and tear to the vehicle’s parts. This will eventually make it less reliable. There is more to this than that. These are some things you should consider when calculating a car’s loss of value.

  • Mileage The parts of your car are made to last a limited time. For example, tires are typically good for between 50,000 and 60,000 miles before they have to be replaced.
  • Age: Older vehicles are more likely to use obsolete parts or systems, or cost more to acquire.
  • Perceived Value: The majority of people would prefer to drive a new shiny SUV over a beater car, even though the SUV runs as well. Older cars are less attractive on the market because of this perceived value.
  • Efficiency: The newer cars have more efficient systems. They may use less fuel and run longer than older cars. Hybrid and electric cars are gradually becoming more popular. Efficiency is particularly important.
  • Condition: A car in poor condition will have a lower value than one that has been in an accident or sustained other damages.
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How to Reduce Depreciation

You don’t have to let depreciation dictate your decisions. You can take simple steps to reduce depreciation so that your car’s value will remain high when it comes time to sell.

Take care of your car

Car maintenance is essential to ensure your vehicle’s longevity. Regular oil changes are a must and you should follow the recommended servicing intervals. To prove that you are a responsible owner, keep all maintenance records in a file.

Be smart about driving

Your car will last longer if you keep your mileage low. Avoid bad driving habits like jack rabbit starts and excessive speeding. These practices put extra strain on the engine and brakes of your car, which can lead to premature breakdowns or accelerated depreciation.

Quality used cars are worth considering

A used late-model car in good condition can help you save money and last almost as long as new cars. A used car can also help you save money on your insurance. To see if the car is still worth its price over time, look at the ratings. For example, Toyotas and Hondas are reliable cars that require less maintenance than cars that may be cheaper initially. The best financial option is not a cheap car that has its transmission fail within the first year.

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Most Frequently Asked Questions

Which is the best auto insurance company?

Each quote is unique because your insurance policy is dependent on many factors. These include your car’s age and driving skills. There is no single company that is right for everyone. Our Best Car Insurance Companies in 2021 list is a great place to begin your search for insurance.

Is it cheaper to buy a used or new car?

If you don’t have the budget to buy a new car, it may be more financially beneficial to purchase a reliable, sturdy car of a trusted brand. A new car’s value is 20% lower the first year. For example, a $40,000 SUV will lose $8,000 the first year.

Do all cars depreciate alike?

No. No. Popularity of the car or type of car is also a factor. Gas-guzzling SUVs that consume more gas are less popular because they are more expensive.