Thinking whether or not you are going to buy a new car or a used car? If you’re thinking about the value of money at this point, it’s best to buy a used car. You may think that getting a new car may be wiser. That although it does cost more initially, you can get more out of it. This may be true, however, did you know that new cars depreciate as fast as 11% just as you get it and drive it home for the first time? Yes! That’s a huge chunk isn’t it.
How fast does a car depreciate?
Imagine if you paid the average price of a car in 2016, it would be $33,560, according to Kelly Blue Book. So, 11% of that price is $3,691.60. Can you imagine losing that much value on your new car just for driving it home from where you bought it? It may sound ridiculously high, but don’t worry. The depreciation value isn’t like that every day. In about a year, the car has depreciated by at least 25%, which is about 2.1% each month you own it. So, after a year, your “new” car now costs less $8,390. Meaning from the original $33,560 you put in, you will only be able to sell the car (if you do decide to) for $25,170. This is only a hypothetical figure, you can add or minus a few hundred dollars depending on your car make and model. But, where does that lead you in three years? 5 years? 10 years? Although the depreciation slows down per year that you have it, it still depreciates. Here is the basic layout to it:
Initial cost: $33,560
Cost of after 1 year (about 25%): $25,170
Cost of after 3 years (about 46%): $18,112.40
Cost of after 5 years (about 63%): $12,417.20
Crazy, right? So, after having your car for five years, you would have lost more than half of the value of the car. First of all, let all these information sink in, then move on to the next part.
Why should a car’s depreciation rate matter to me?
Ah! It should matter to you. Imagine if one day you were put in a financial need. The only thing you could sell was the car. Wouldn’t you want to get the best deal out of the initial cost you paid? If I were you, I would. Besides, would you like to owe more than what the car is worth after using it the first year? Definitely not. So, how can you stop depreciation? In all honesty, you can’t. Once you’re in, you may look for a way out. This why carefully thinking before purchasing is important when buying a car.
If I can’t stop car depreciation, what do I do?
You have two options: buy a used car or use your new car for as long as you can.
The first option may be the first one. When buying pre-owned cars, you would save a significant amount of money. While saving money, you would also lower depreciation rates. Think about it this way. If you buy a pre-owned car, that was say three years old, then you didn’t have to pay at least 50% of what you would’ve paid. But, there are precautions you would have to take as well when buying used cars.
Next up, using the new car for as long as you can. If you’d rather purchase a new car, then it’s okay too. You can limit depreciation by having the car as long as it’s running. With steady usage and continuous proper maintenance, your new car may still run as new even after 10 years. By that time, the depreciation rate will be almost insignificant to think about.
Now that you know all these things, we hope that you learned something about car depreciation. Although it may easily be a good a idea to buy a new car instead of a used one, there are a lot of things to consider first. If you are looking into buying used or pre-owned cars, you can visit The Auto Warehouse and ask for assistance.