How Quickly do Cars Depreciate?
Depreciation matters. Statistics show that depreciation is the second largest cost to the consumer, after fuel costs. Below, we take a few minutes to learn more about depreciation and what factors influence the rate of depreciation.
But what do we mean by “depreciation”?
Depreciation is the difference between the price you paid for the vehicle and the value of the vehicle when you’re selling it or trading the vehicle in. There are many factors that influence the rate of depreciation, many of which we review below.
An average vehicle – which has approx. 10 thousand miles – loses 20 percent of its value year on year over a three-year period. In other words, a vehicle loses 60 percent of its value over the three-year period.
Clearly, these percentage values must be applied to the cost of each vehicle. A vehicle that costs $7,000 will – on average – be worth $2,800 after three years. However, a vehicle that costs $70,000 will be worth $28,000 at the end of three years.
These are substantial losses.
Rate of Depreciation
The percentage figures above hide some important facts. The rate of depreciation is dependent upon a wide variety of other factors such as:
- The vehicle model and type
- The number of miles amassed
- The current state and condition of the vehicle
Each of these factors must be considered when determining a final sales price.
Vehicles lose value as soon as you’ve driven it from the forecourt. Most cars lose up to 30-40 percent of its value at the end of the first year. However, this depends upon the factors listed above. Some vehicles may only lose as little as 10-15 percent of its value.
The rate of depreciation varies, then, on a year-by-year basis. Most vehicles lost most of the value at the end of the first year. The depreciation rate declines for every year thereafter – with approximately 60 percent of its value gone after the third year.
Cars that depreciate at a slower rate include:
- Cars with higher degrees of fuel efficiency.
- Vehicles whose demand is higher than its current supply.
- New models depreciate slower than older models.
Because depreciation is the second highest cost for motorists, there are very good reasons to consider buying a used car.
Used cars and depreciation
The older the vehicle, the slower the rate of depreciation. In practical terms, this means that the vehicle you buy loses less value over the long-term – saving you more money over that period.
For many people, this justifies the purchase of a used car. While a new car might come with all the latest technological gadgets, these are considered secondary features and something of a trend. Many people simply want a comfortable vehicle that gets them from A to B without any hassle.
The higher mileage the vehicle has, the more likely the used car encounters mechanical problems. You must offset the cost of these inevitable defects against the gains you get from reduced depreciation.
You can reduce the rate of depreciation by following these 4 simple steps:
- Keep miles down to a minimum. Fewer miles equals lower depreciation.
- Ensure the vehicle is operating to its best possible standard.
- Keep the vehicle clean. Unkept vehicles only attract higher servicing costs.
- Ensure that the vehicle meets the requisite servicing standards.
By taking these four simple steps, you reduce the rate of depreciation. You can then pitch your vehicle at a much higher sales price.
Vegas Used Cars is the leading provider of quality used cars in Las Vegas. Check back to our used car blog soon for even more great tips on how to reduce the rate of depreciation, as well as other great articles on the very latest automotive news.