One thing you need to understand before going ahead with your car buying plans is that cars depreciate. Depreciation is a method used to calculate the cost of a physical asset over its useful life. As a norm, cars have to drop in value after some use, making them sell lower than the original buying price.
The drop in pricing can result in unexpected losses, and it’s normal to feel like you made a wrong financial move. It’s usually advisable to account for depreciation before talking to the car dealers to avoid making losses. Better yet, consider some practical ways to avoid car depreciation altogether.
Is avoiding car depreciation possible?
The depreciation rate of a vehicle varies depending on several things, but one common factor is the number of years it has been in service. According to Money Helper, in the first year, the depreciation falls between 15 to 35%.
However, it can increase to 50% or more after three years. This means the car will be 40-50% less than its initial buying price after three years. For example, if you bought the car for $40,000, after three years of use, its value will be $20,000 or $16,000 less the buying price.
The other reason the car depreciates is the number of owners it has. If a vehicle has been through several owners, its value will be less than one with fewer owners. You can check the number of previous owners through the U.K. Government’s V5C registration.
The mileage of the car is also crucial. A vehicle with high mileage costs less than one that has covered a few miles in a year. Such losses can be heartbreaking and make the investment unworthy, especially if you have a brand-new car.
Work with averages
Before investing in any car, it’s best to understand that vehicles perform differently. Since new cars depreciate at different rates depending on the make or model, choose the best. Car buyers can rely on Vincentric to know the best value cars to invest in.
The Vincentric awards for 2022 best value car for the mid-size passenger category are Toyota Camry which costs 4.4% below the expected price. Such a car will not make you regret after five years of service despite a 24% depreciation as the value lost within that period isn’t much.
Buy a second-hand car
Car owners suffer the effects of depreciation mainly because of opting for brand-new cars. When selling the new car to the second owner, its value drops immensely despite the number of days it served you. Save money by buying a second-hand car that has been in service for 3 to 5 years.
The good thing with such vehicles in this era is they have similar protection to the new ones. This is because of the Certified Pre-owned (CPO) Programs and the extended warranties. Such vehicles also don’t have a lot of wear and have considerable mileage covered.
As Global Mobility puts it, the average age vehicles spend on the road is 12.2 years. The cars can’t also over exceed 200,000 miles of coverage. So, buying the 3-year-old car for 40% less than its initial price, with more mileage to cover, is a good choice.
Rely on timing when trying to avoid car depreciation
Another way of avoiding car depreciation effects is working with time. Remember, the car depreciation rate is higher when the number of years it has been under your ownership is less than 1 to 3 years. The depreciation will be higher than after 4 or 6 years. So, selling a car at a reasonable price requires some good timing to avoid the effects of depreciation.