The Truth About Depreciation and What It Means for Used Cars

Shopping for a car typically means finding a model you like that fits within your budget, right? That may sound simple, but there is a lot more that goes into it than that, and among the abundance of shiny cars and tempting price tags, car depreciation lurks. The last thing you want is to buy a car that loses over half its value within the first year. So this loss in value, called depreciation, is something you should know more about in order to choose your next vehicle. You can avoid a lot of depreciation, which really should be your goal. You do not want to spend money where the value will not stay, and it is possible to avoid doing so. In fact, visiting a used car dealership near you is the easiest way to get a vehicle that will keep its value.

You want to avoid depreciation because depreciation is a massive loss in your money. Luckily, there are a lot of factors that go into the decreasing value and ways to find a vehicle that won’t lead to this experience. So today, we at Dan Cummins CDJR Paris are going to tell you more about these factors. Without further ado, let’s get into it.

The Basics

The depreciation of a vehicle, in short, is how much value it loses over time. As aforementioned, there are quite a few factors that go into just how much a particular car will depreciate year after year. Some of these factors are simple such as the make and model; some vehicles hold their value better simply because of how they hold up. And of course, other factors include the way the vehicle has been treated, any damage done to the vehicle, and the miles that have been put on it in the time period you have owned it.

Of course, though, one of the most significant factors that will impact depreciation is time. The longer you own a car, the more the value will depreciate. However, a car will generally depreciate the most within its first year, typically losing an average of 20% of its original value. This means that if you purchase a brand new car, you will lose a significant amount of money. While, if you buy a used vehicle, a massive amount of the depreciation has already happened.

Used Cars and Depreciation

Many experts suggest that buying a used car is, in fact, a smarter move than buying a new car, due to the fact that new cars depreciate so much in the first few years. After about three years, new cars typically only maintain a residual value of about 40-60% of their purchase price. While sometimes this is because the vehicle may not run as well after that amount of time, often, it is simply because there are now newer and “better” options on the market, making the used option less valuable. If you do a little research at first, though, you will be able to determine which used vehicles are still good buys. And when you do so, you will be saving tons of money.

Depending on what you’re looking for in a vehicle, a used car could very well be a resourceful investment. Not only are you able to avoid that huge decrease in value after the first year, but you can also save a decent amount of money if you find a car that is only a couple of years old. In fact, finding a used car that is only three or four years old can typically cut its purchase price in half.

Now, instead of settling for something that you can just afford (as opposed to what you really want), you can get more for your money. That new SUV you were looking at may have been out of the picture before, but an earlier model may prove to be better for your wallet. And not only are these used models cheaper upfront, but you’re also able to save money on things like insurance costs, since insurance rates (and in some cases, registration fees) are lower with used cars. By purchasing a used vehicle, you are getting a better and mostly post-depreciation price. There is no denying that this is a better option than buying new.

What Cars Depreciate the Fastest?

Like we mentioned before, not all cars depreciate at the same rate, which means doing a little bit of homework when you’re shopping around is advised. Some makes and models tend to depreciate faster than others, for various reasons. And some of the top high-depreciating models include:

• Maserati Quattroporte
• BMW 7 Series
• Nissan Leaf
• Jaguar XJL

These days, car buyers are looking for more functionality, making luxury cars some of the fastest depreciating cars on the market. This means that while the value drops fast with time regarding these luxury vehicles, it is simply because of the market demand. So if you are looking to buy a luxury vehicle, the best place to look is the used market.

You can get a significantly better price, with all of the most recent features, and a lot of the depreciation will have already occurred. That said, it would be a poor choice to buy these luxury options brand new because they are quickly not worth what you paid for them. They depreciate fast in terms of monetary value, but they are still full of value to drivers. This only further proves that the used market is the best place to find a vehicle with a low cost and a low chance of dealing with depreciation.

Which Cars Hold Their Value the Best?

 

On the other hand, when you think about high resale values, there are just certain brands that you can expect to find on the list. The following have the best depreciation rates within a five-year period:

• Jeep
• Ram
• Toyota
• Subaru

The top low depreciating cars include the Jeep Wrangler with a 30% depreciation rate, the Toyota Tundra with a 35.9% depreciation rate and the Subaru WRX with a rate of 40%. This is simply because those vehicles and those makes last longer. So, the prices will not be significantly lower for these makes on the used market than on the new market.

That said, there still is an initial depreciation for these vehicles, so better deals are found on the used market. Plus, because they last longer, buying used will not result in worries about it being a lemon. Again, researching each vehicle will enable you to find the best quality to value ratio, and this ratio is most often found on the used market.

Why Car Depreciation Matters

So, why should you care about car depreciation? Whether you’re buying a new or a used car, car depreciation can affect you in one way or another. Those who buy new tend to face the biggest drop in value within that first year period, prompting more and more buyers to turn toward gently used models to avoid this. When you buy used, not only are prices more realistic, but you’re also still able to get a quality vehicle for a better price, helping you to sleep much better at night. In short, buying used is one of the top ways to avoid car depreciation costs.

There are plenty of other things in life that you can compromise on, but don’t make the car you’re in one of them. When you choose to buy a used car, look for a model that meets your requirements, is well-maintained, and still fits into your budget. Car depreciation doesn’t have to affect you if you do your research, like learning about gap insurance and other ways to balance depreciation costs.

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