Mention the phrase ‘car depreciation’ to anyone inexperienced in car buying, and you are likely to raise a yawn. It’s certainly not the most glamorous subject – but it’s also one of the first things you should know about when buying any vehicle.
Why so many people don’t understand depreciation is a complete mystery. After all, if it was money we were talking about instead of cars, there is no way they would remain in blissful ignorance for long. Let’s say you had $20,000 and put in in a bank. Would you be happy when, in five years time, you go to withdraw your money and find you only have $6,000? Probably not, right?
So, if you don’t know much about depreciation and why it is so important, read on. Our guide will talk you through the basics and give you some tips on how to get the best value for your car.
What is depreciation?
In simple terms, car depreciation describes the amount of value your vehicle loses from the moment you buy it to the moment you sell it. It’s the biggest cost of owning a car, along with the money you spend on fuel.
How much will my car lose in value?
It depends on the car and how old it is. New cars are expensive, and sell second hand for far less. So, they depreciate a lot more than used cars. In fact, as soon as you buy a brand new vehicle, you have lost around 20-25% of the value already, without driving it away from the showroom.
If you keep it for up to a year, you can expect that to increase to up to 35%. After five years, you may have lost well over half the value of what you paid for the car. Still think that brand new Chevy is worth it?
That sounds like throwing away money…
Well, it is. But it’s the price you pay for being the first owner. If you have the money to throw around, and you enjoy the status, why not? However, it’s worth thinking about depreciation if you are, say, taking out a loan for a car.
A typical loan will throw on anything from 30-50% of the asking price on top. So, when you finally finish paying for your car, you might have paid half of its original value again. The trouble is, the original value has been wiped out by anything up to 50%. That means you have lost the equivalent of the car’s value in real cash over five or so years.
What can I do to avoid it?
First of all, don’t buy new. A car of three years old holds its value far better than anything younger. Also, make sure you drive it well and seek out excellent maintenance. Get regular services from an authorized dealer who gets the thumbs up from your car’s makers. For example, if you drive a Merc, go to a Mercedes-Benz dealership for your services. The better service history you have, the more you will be able to sell it for when you decide the time is right.
Finally, make sure you drive as efficiently as possible. Poor driving and lots of miles on the clock will cut down your chances of getting the best price. So, walk more, and drive slower whenever possible – and never thrash the engine all over the place.