Car depreciation is the difference in value between when you buy your car, and when you sell it. Most car owners hold onto their vehicles for only a few years. Since cars lose the most value during their first four years, car depreciation matters most for just these buyers. Which means that most car owners are affected by the loss in value of their automobiles.
The majority of consumers purchasing new vehicles choose financing, a loan repaid over time. In general, financing lasts from two to four years. Car owners, as a result, tend not to keep their cars past this period. When financing ends, however, it is time to replace your car. The biggest hit to the wallet in buying a new automobile, is car depreciation, a cost that goes largely unnoticed by buyers.
Car Depreciation: What’s the Drop in Value?
Cars depreciate somewhere between 15-35 percent in the first year, and can reach up to 50 percent or more in the third year. It is this drop in the value of a car that reflects its worth on the used car market. After the fourth year, the rate at which a car depreciates slows. That makes the fifth year the sweet spot at which a used car becomes a reasonable purchase.
Avoiding Car Depreciation
Car depreciation is a fact of life. But car owners can absolutely limit the impact of this loss in value. Here are some things you can do to minimize car depreciation to protect the resale value of your car:
Maintenance, Maintenance, Maintenance—Keeping your car in tiptop shape is the best way to minimize loss in value. Stick to the suggested maintenance plan for your car. Maintenance, however, is not only a matter of function, but appearance. Keep your car clean, and keep it looking spiffy, inside and out. Purchase washable seat covers, and don’t smoke in your car. Make a note of everything you do to maintain your vehicle.
Mileage—Limiting car use can make a difference to car resale value. The more mileage you rack up, the more your car will depreciate. Before you get behind the wheel, consider whether you can get where you’re going some other way. Traveling shorter distances and limiting road trips means your car will be worth more when it comes time to sell.
Don’t Make Changes—Avoid making changes to your car’s appearance, for instance stay away from affixing advertising or sports decals to car windows. Such alterations to the way your car looks can make it less appealing to the next buyer, affecting the value. Before making any changes to your car, consider whether such changes may cause your vehicle to depreciate more than expected.
Car Color—The color of the car you buy can help to minimize the rate at which a car depreciates. Unusual car colors can make it more difficult for your car to sell, lowering resale value. Go for standard factory colors when choosing your new car. Basic colors such as white, red, black, or silver can help to protect the resale value of your car.
Write it Off—Consult a tax advisor to see if you are eligible to deduct a portion of your car’s depreciation. If you use your car for business purposes, you may be able to write off some automobile depreciation on your income taxes for 4-5 years.
Car Depreciation: Determining the Loss in Value
Knowing the depreciation value for your car may help you when it comes to selling your vehicle, or buying the next one. Want to get an estimate on car depreciation for your vehicle? There are many free car depreciation calculators on the Web. Here’s one such car depreciation calculator.