Posted August 17th, 2015 by Ashley Kane
Maybe it’s a relative or a friend that first makes the remark. You drive up in your brand new car, excited and eager to show off your ride. You are, after all, proud of the shiny vehicle – It’s clean! The engine pickup is great! A smooth ride! That is, until someone breaks through your cheeriness to say, you know you just lost thousands of dollars driving that off the lot?
Way to ruin a good mood.
Of course, you know they’re talking about depreciation and you’ve heard that line before. Drive a new car off the dealership lot and watch it lose significant value. But how true is it?
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How Does Depreciation Work?
In 2014, there were 16.5M new cars out on the road. That numbers averages out to around 45,205 new purchased vehicles a day. Clearly, people are still buying the latest cars. Does that mean that a majority of the public is uninformed or is there more to the depreciation process than meets the eye?
Here’s the truth: new cars do lose value. Depreciation is actually the single greatest expense for car owners, and the most silent one. When you drive your vehicle off the lot, it automatically becomes used. While the exact loss of worth may vary based on car make and model, a few thousand dollars is typical. Edmunds states that cars lose about 11% of value within minutes after purchase.
Ouch. Of course, it’s important to remember that depreciation occurs regardless of whether you buy a new or used car. It’s just at a different rate. During the first five years, a car has a residual value that decreases around 20% each year. After that, the drop off is slower. Furthermore, the devaluation for two different cars is never exactly the same and can be based on factors such as mileage driven each year, overall condition, vehicle age, make, model, and driver habits.
Stop the Depreciation!
Well maybe you can’t stop a moving train, but you can slow it down. Your car will depreciate each year but you can control some factors that influence the rate.
- Stay Up to Date on Maintenance
Take care of your new car. It is, after all, your new baby. By acting on repairs immediately, you protect your vehicle from losing more value than necessary. Keeping your car in great shape with frequent oil changes and other routine services can pay off big time. Not only, does it save you from dealing with expenses later, but it can help with resale value.
- Reconsider Accessories
That stereo system may look real nice with all of its fancy gadgets and technology. But aftermarket add-in accessories may cause more depreciation if you plan to resell. If that’s not your plan, by all means, accessorize away. Devices like GPS and safety features are typically considered good improvements and can give a car value.
- Think Twice About That Color
Before you purchase a lime green car or bright purple vehicle, you might want to think about style. Colors can come and go in fashion and a rusted orange may be high-end this year but what will it be when you go to trade in the car four years from now? It may not be as easy to resell, and the worth could go down.
With new cars, you typically have a strong factory warranty and assurance about the car’s reliability. On the other hand, there is more risk involved with used cars but greater money saved on depreciation. It can be helpful to research a used vehicle’s accident history and to have it inspected before purchase. Weigh out the positives and negatives and consider how long you plan to keep your vehicle before making the jump.
Remember to consider car insurance rates as well as that may influence your final decision. New cars can be more affordable to insure if they have great safety features and inexpensive parts, but they can also be more expensive depending on make and model. Compare quotes before purchasing so you can know what to expect from your new or used vehicle.
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