You may have heard of auto depreciation, but do you know what it is? If you’re not exactly sure, we’ve put together some information to help you understand it and determine how to factor auto depreciation into your cost of vehicle ownership.
Like many items, cars lose value over time as they’re used. Some industry experts say your vehicle loses 20% of its value in the first year, and 15% each year after. Using those figures, in five years, your car is worth 40% less than what you bought it for new. In our five-year example, a car you bought for $40,000 would be worth about $16,000. Depreciation is the difference between your car’s value when you purchase it and what it’s worth when you sell it. In our example, the depreciation would be $24,000.
There are many elements that impact your car’s value, decreasing it over time. Some of the main factors that could impact your vehicle’s value are:
Make and model. As styles change and auto manufacturers create upgrades, the make and model of your vehicle may impact its overall value. Features in newer models may not be found in a previous year’s model, like back-up cameras, enhanced safety features, and more.
Mileage. How often you drive your vehicle will have a major impact on its value. The higher the mileage on a car, the more wear and tear. The type of driving you do may have an impact, as well. Vehicles with mostly highway miles will depreciate less than vehicles driven in primarily stop-and-go traffic.
Vehicle condition. Maintaining your vehicle, both cosmetically and mechanically, can impact your vehicle’s value. Cars with cosmetic damage like scratches or dents will be less valuable than those without blemishes. Mechanical problems can be costly for a new owner, so you’ll want to stay on top of any required maintenance and keep records to show to a potential buyer or dealership.
While cars are always depreciating, there are ways to help minimize how much that happens. First and foremost, properly maintaining your vehicle will help tremendously. Following your manufacturer’s recommended maintenance schedule can keep your car running in its best condition and will be valuable in reducing depreciation. A well-maintained vehicle will be worth more during resale. Additionally, being a safe driver will help decrease the potential of dents or scratches, and paying attention to your car’s cosmetic appearance will help its curb appeal when you look to sell or trade it in. Take the time to properly clean and detail your vehicle regularly to keep the outside looking great and reduce dirt and stains throughout the car’s interior.
In addition to proper maintenance, you’ll want to limit how much you customize your vehicle if you’re looking to minimize depreciation. Items like custom rims, tinted windows, or aftermarket upgrades may be the style you’re looking for, but potential buyers may be turned off by your choices. In order to keep your car’s value as high as possible, skip the customizations and keep your vehicle in factory condition instead.
When you decide to sell your vehicle, consider selling it yourself to help offset depreciation. Typically, the amount you’ll receive for your car during a private sale is more than you’ll receive when you trade it in. Car dealerships need to make money reselling vehicles, so they may offer you less than the retail value to help boost their bottom line. With a little legwork and patience, you can sell your car on your own and put that extra money in your pocket.
While depreciation is unavoidable, taking care of your vehicle and purchasing a car within your means can help reduce any negative impact on your finances. For more financial tips and tools, visit our resource center page.