Understanding How Cars Depreciate

Unless you immediately drive it into a garage, seal it for 50 years, and cross your fingers that future generations will consider it a classic, your new car is going to depreciate in value. They’re not exaggerating when they say a new car loses a big chunk of its value the moment it’s driven off the lot — that’s the truth. Car depreciation is a cold, hard fact whether you’re buying a new or used car. Like all cold, hard facts about economics, there are a lot of complicated variables at play. Depreciation is a complex process that can change a lot depending on the circumstances, but understanding how cars depreciate can give you at least a little bit of an advantage when you consider buying a new or used car.

How Vehicles Loose Value

Depreciation impacts the value of a car between the time you purchase it and when you look to sell it to someone else. It affects the value of new cars and used cars alike, but the factors that determine the car depreciation rate can differ. For a new car, the rule of thumb is that a new car generally loses 10 percent of its value the moment it leaves the lot. That means, if you drove your $25,000 new car to the end of the block and decided you didn’t like it anymore, the most you could hope to get back from the dealership would be $22,500 — even if you never removed the plastic from the floor mats. In general, new cars lose 15 to 25 percent of their value each year for the first five years you own it. However, the car depreciation rate can be even worse for cars that have lower brand-name appeal and fewer options.

Supply and Demand

The used car depreciation rate also depends a great deal on the supply of used cars in the marketplace. Obviously, the more used cars that are available to buy, the less valuable your car becomes. You don’t have any control over market forces like basic supply and demand, but there are some factors that give you a little bit of control over your car’s depreciation rate. For example, buying a new car with a lot of options and features will help buoy your car against the forces of depreciation, as well as keeping the mileage as low as possible before selling. Even simple things like keeping your car clean and detailed can play a role in keeping its value a bit higher than expected. Neutral-colored cars hold onto their value better than cars painted in garish colors, also.

It’s a fact of life that the next car you buy will depreciate in value, but having a little knowledge about how depreciation works and what affects it can help you make a more-informed decision the next time you buy. Still have questions about how much do cars depreciate? Contact the experts at Capital Auto Auction today.