There’s nothing like the feeling of driving a new car off the lot for the first time. That new car smell, that feeling of getting everything perfectly adjusted for the first time. There is nothing quite like it.
So it comes as a surprise when, months and years later, you realize that your car isn’t new anymore. The smell has faded, that new feeling has worn away. Suddenly you realize your car has depreciated and lost some of its value. But just how much value has your car lost since that first day? And why?
What exactly is depreciation? Car depreciation is the difference between how much your car was originally worth and how much it is worth currently. Depreciation occurs with everything we own. Unless we are talking about antiques, nothing gains value as it gets older. The value of your car will reduce the more you drive and the more wear and tear your car accumulates.
When looking at the rate of depreciation, we can divide it into three categories: after it leaves the lot, after one year, and after five years.
The second you drive off from the dealership your car goes down in value. It officially has an owner and is no longer new. It is estimated that a car loses about 10% of its value the moment it leaves the lot. Within a few feet, your new $25,000 car is worth $22,500. This is part of why the Loan-to-Value ratio on cars can be so high.
The biggest decrease in value occurs in the first year of ownership. Experts estimate that new cars lose 20% of their value in the first year. Your $25,000 car is now worth only $20,000.
After the first year, cars tend to lose about 15% of their value every year. By the end of the car’s first five years, it will lose about 60% of its original value.
There are many reasons why cars depreciate, but it all comes down to wear and tear. The more you drive a car, the less reliable it is and the more likely you are to run into problems. Here are the top reasons for deprecation:
The more you drive your car, the more it depreciates. High mileage shortens the amount of usable time left on the car, thus decreasing its value more.
The older a car is, the less it’s worth. Even if it still drives perfectly, the fact that it is an older model will reduce the value.
If you are driving a more popular model, your car will depreciate slower. Value is based on how much someone is willing to pay. The more people want your car, the more they will pay for it. If you have a less desirable car, expect your car to depreciate at a faster rate.
When it comes to depreciation, the less owners a car has the higher the value will be. How well the owners maintained the car and where the car resided will matter a great deal as well. If the car was kept in a busy city, it may indicate stop and go wear and tear. It is also more likely to have small dings and dents from constantly being in close proximity to other vehicles.
What is the overall condition of your car? Has it been in a lot of accidents? Were there regular oil changes and alignments? The better the car was maintained, the longer its usable life will be, thus the higher the value will be.
Depending on the price of gas, your vehicle may depreciate at different rates. Vehicles that are more fuel efficient depreciate less when gas prices are high. Cars that consume more gas depreciate less when gas prices are low.
Vehicles with neutral colored paints tend to depreciate less than other vehicles. This is because neutral paints remain consistently popular, while other colors will go in and out of style.
If you took out a loan to purchase your new car, you must be especially wary of depreciation. If depreciation occurs very suddenly, you risk becoming upside down in your loan, meaning that you owe more on your loan than the car is worth. Do your research before you buy your car to ensure that the model you are purchasing does not depreciate abnormally fast, and follow the tips below to reduce the amount of depreciation.
While depreciation is inevitable, it is possible to slow down your car’s depreciation. Here are some helpful tips:
Cutting back on driving is a great way to curb depreciation. If you can put less than 10,000 miles on your odometer per year, it will help you out a lot in the long run.
Keeping good maintenance habits will also help reduce depreciation. Regular oil changes, alignments, tire rotations, and air filter changes are just some of the routine maintenance you should keep up on.
Wash and wax your car regularly to protect the paint and keep the exterior looking as new as possible. If your car has small dings and dents, try to get them out if possible.
Keeping up on maintenance records is good practice in general, and can help increase the value of your car. It’s always helpful to be able to prove that your car has had regular oil changes and other maintenance performed.
Smoking in your car will lead to faster deprecation too. It’s almost impossible to get the tobacco smell out of interiors, so avoiding smoking altogether will help keep your interior clean and smell-free.
Reducing the amount of food you have in your car can also help depreciation. This will reduce the likelihood of spills and smells in the interior and help you maintain value.
Depreciation is unavoidable. Every car will lose its value over time, but good driving and good maintenance habits can help curb the effects.
Be especially cautious of depreciation if you have an auto loan. If your auto loan is a little too high, it might be time to consider refinancing. Auto Approve is here to help you refinance to a lower APR, which can save you money and reduce your monthly payments.