Car depreciation is the difference between the monetary value of a car the moment you buy it and after a period of time such as 3 or 5 years, or when it comes time to sell the car. Most cars out there depreciate as much as 20% the moment you drive it off the lot, up to 35% after the first year of use, and up to 60% after five years of use.
Of course, these numbers vary drastically depending on the make and model of the car, the mileage, wear and tear, equipment list, market demand, the car segment, and so on. Some higher-end cars depreciate the fastest, while others are known to even appreciate over time.
Used cars, especially cars that are more than 5 years old depreciate the slowest, while some 20+-year-old cars can often go up in value. Be that as it may, car depreciation is one of the most important aspects you need to consider while buying a brand new car.
It’s worth mentioning that there are specific tips and tricks on how one can minimize depreciation to a certain degree by keeping the mileage down, avoiding unnecessary modifications that can not be undone, looking after a car, and repairing it when necessary. Be sure to choose the right options while buying the car as this is essential if you want your car to have decent resale value.
Cars that depreciate slowly – Highest value retention
By buying smart you can avoid taking the brunt of depreciation, but cars that depreciate slowly are mostly reserved for the upper echelon of buyers. However, that is not always the case because some relatively cheap cars are also known to hold their value well.
You should follow all the current trends when it comes to buying a new car because these can save you money when it comes time to sell the car. A perfect example are fuel-efficient cars because the interest in efficient cars is exponentially rising in the last decade or so.
Carmakers these days refresh their models every 4-6 years on average, so buying at the right time can also affect how steeply a car depreciates. If the car in question has a long waiting list on order, it means that the demand is strong thus the depreciation is low.
You should consider looking through various online sources which specialize in predicting how well a new car should do as far as depreciation is concerned.
Cars that depreciate the fastest – Lowest value retention
There are lots of cars out there that depreciate faster than their competition. These cars are usually expensive to buy and are in low demand. Full-size luxury sedans are known to depreciate incredibly steeply which is a great drawback because they also cost a lot of money in the first place.
Unpopular cars also depreciate fast because the market demand for these cars is not all that exaggerated. This means that the seller needs to lower the price down even faster if he wants to sell the car fast thus lowering the overall resale value of all similar cars on the market.
If you opt for a car with unpopular exterior and interior colors, you are not doing yourself a favor because cars such as these are known to depreciate faster than a more conservatively optioned-out model. All-in-all, you should investigate all sorts of price guides online which also specialize in predicting how fast a car depreciates.
Tips on minimizing depreciation
There are ways how one can negate the effects of depreciation and opting for safe exterior and interior color trims is a perfect example of that. However, the most important thing is the mileage as some low mileage examples are often as much as 50% more expensive than a comparable high-mileage example.
If you take good care of your car which means that you service it at the dealer, you carry out all the repairs in due time and you generally keep the car neat and tidy, the depreciation is not as exaggerated. The number of previous owners a car had also affects depreciation, the fewer the better.
The warranty also plays a huge role when it comes to depreciation so you should extend your car’s warranty because you are likely going to recuperate the cost when it comes time to sell the car. Reliable cars are always high in demand which means that these types of cars hold their value better.
Which car brands experience low depreciation?
Market demand, reliability, and desirability of a brand greatly affect how well a car retains value. Brands like Toyota, Lexus, and Porsche are all known for their reliability and desirability, so these three are always at the very top when it comes to market depreciation.
On the other hand, brands like Maserati are low in market demand which makes them depreciate the fastest. BMW is also known for steep depreciation but this varies depending on the model in question. Land Rovers also depreciate steeply because they are incredibly expensive but are known to be fairly unreliable after a few years.
Which cars increase in value?
Expensive, limited-edition, high in demand exotic cars and classic cars are known for even appreciating over time. Specific halo cars, last-of-its-kind supercars, and incredibly popular brand-new cars are the ones that tend to appreciate over a short term.
This pattern can be seen with all sorts of items which means that this is not only reserved for cars. A great example is a Rolex watch because Rolex watches are high in demand and there is a huge waiting list to get them.
Does it make sense to buy a brand-new car?
Many people believe that cars have reached somewhat of a plateau in recent years which means that newer cars are not exactly better than older cars. As such, it begs the question does it make any sense to buy a new car at all, especially if you buy the car outright.
That being said, sometimes it’s better to opt for financing or leasing because these types of agreements tend to consider depreciation over time which means that they are often softer on your wallet. Either way, be sure to investigate beforehand to make a sound financial decision.