If you are considering putting a new $35,000 or $40,000 vehicle in your garage, here is some important advice for you: get yourself a sticker price near $45k. That’s one way of viewing depreciation. According to CARFAX, vehicles lose over 10% of their value during the first month from the time of purchase. The value of your car drops steadily, too.
Some people are aware of the depreciation occurrence but only a few realize that this is an opportunity to save on cost for people avoiding that early hit in car value depreciation.
Based on present rates of depreciation, up to 20% can be lost from the value of a new car within the first year of its purchase. However, barely 10% is lost annually from its value over the next four years of usage. This implies that as little as 40% of a car’s original purchase price is its worth after a period of five years.
Surely, you’re not worried about the “average vehicle”, you’re interested in your own vehicle. So we’re presenting info on ways certain factors can affect the depreciation of a vehicle.
Purchasing used cars is one hack that saves you money on the original pricing of the vehicle, and lets you enjoy lowered costs of car ownership.
The Concept of Depreciation
The current concept of depreciation started in the 19th century to help the bigwigs in the railroad industry to display more gains. With a little magic in accounting, the expenses incurred in developing trains, and laying rail tracks would not be subtracted from their annual income at once.
What did they do? They summed the total cost of making a train and placed a monetary value for the amount used up yearly. This “used amount” is balanced against their yearly income until the value of the train runs down to zero.
In this same manner, the depreciation of a car demonstrates how much value you have consumed over time.
Is there any other thing affecting my car’s value?
Actually, buying a new vehicle will incur more cost than the car’s true value – you have dealership fees, taxes, and a couple of other fees to clear. The same applies to certified pre-owned cars and locally used vehicles purchased.
When you do a comparison between the total cost of purchasing a new car against its real value, you did find you’re already running at a loss in a deal that hasn’t even ended. When it comes to perception, certain top-tier brands can reserve some value because of the reputation of the auto companies. Honda is generally considered one of those brands, specifically the Civic model. People’s perception of different car types also plays a role in the rate of depreciation of a vehicle. For example, when SUVs and trucks are in higher demand than conventional cars, the former has more possibility of retaining their value over time because people are willing and able to spend cash to get them.
So what type of vehicle should I be looking for?
This situation pivots when looking at purchasing a one-year-old car or certified pre-owned (CPO) vehicle that still fits your need and budget nicely. The CPO programs of many car manufacturers offer first-rate spick-and-span vehicles that have already been greatly hit by depreciation and possess long-term company warranties.
In addition, some Certified Pre-owned program offers lower interest rates and even auto loans. These are the types of vehicles offered at DriveNation.
What’s the downside to buying a used car then?
This method of saving money by buying used cars may not work for everybody. For entry-level buyers, you need to be accustomed to the shopping process and learn how to identify and locate a good used car dealer.
Also, let’s assume you are not going to pay in cash, that means your credit rating needs to good in order for you to be considered for reasonable interest rates.
Another issue that may occur is when you go for certain vehicles such as a convertible, electric cars, or a coupe, for example, you may find it difficult to sell off such cars.
Finally, most used cars are used for a period of three years. If you get attached to it and decide to use it for more than three years, the maintenance costs may climb while the car will begin to attribute further depreciation anyway, and these may eat into the hard-earned savings you‘ve been keeping.
Do you want to reduce your car’s depreciation?
Your car can hold its value with a few major guidelines. First, because a car depreciates as its kilometers climb, you can soften this by using your car less often. 16,000 kilometers per year is a good tipping point for any vehicle. Any more than this, you will have to deal with the wear and tear that will begin to take effect on your car’s health.
Secondly, keeping up with your car’s maintenance will go a long way in impacting your car’s depreciation rate. According to CARFAX, cars with up-to-date safety tech tools keep their value much steadier over a period of five years of usage.
The moral of the story. Buying the newest toy isn’t always the best financial situation. Consider all of your options and get the best bang (and most car) for your buck.