Understanding Car Depreciation

September 20th, 2021 by

When it comes to purchasing new vehicles, there’s this saying that gets thrown around a lot. A new car starts losing value as soon as it leaves the lot. What happens is a phenomenon known as depreciation, and it applies to every single car out there.

Depending on the model, it typically stands at a loss of value of in-between 15-35% for the vehicle’s first year alone. Believe it or not, elevating up to 50% or more for the next three years. Some consider these numbers to be too big, but that’s a harsh reality in car finance.

For someone whose intention is to sell their car at a later point, this comes as an obstacle. If left unchecked, it would amount to a significant loss of value.In this article, we’ll go over the main reasons for which a car’s value depreciates over time, as well as tips to counter their effects.

We intend that you can put this knowledge to use to minimize the amount of depreciation affecting your car. What makes a car’s value depreciate over time? Overall, most of the attributes which lead to depreciation can be put into two categories. Let’s look at them.


Reliability and popularity of the model

It goes without saying, but part of what makes a car model what it is is that every single car belonging to that line shares a significant amount of features and the quality of handiwork. Meaning they’re intended to perform alike when put under similar conditions.

Each vehicle model should be able to receive an accurate review once a decent amount of time has passed since its original release—a review which, technically, could be applied to every individual car of the same model.

With that in mind, some cars have made a reputation of their own for being unreliable. If the vehicle in question were to be one of them, the lack of customer satisfaction alone would amount to a significant depreciation. Nonetheless, that would be an instance of a worst-case scenario.

Now, let’s picture a more positive one. Let’s assume that your car belongs to a line that did get a reputation for reliability. In that case, depreciation would depend on its more specific details instead of the general opinion. Is it a big car? Similar in size to an SUV? Well, sorry to tell you, but that’s yet another reason for depreciation.


Why? Because They Come with Higher Maintenance Costs Than Smaller Cars

How’s its fuel economy? Does it run at a low rate of miles per gallon? If the answer is yes, that’s another red flag—no need to tell why. Finally, was it popular at all during its release? Is it still popular today?

Assuming the model is relatively recent and popular at some earlier point, chances are that people are still looking for it, just as they were during its debut in the market. The closer it is to the newest model, the better it will hold its original value.


General Condition

Of course, how well you took care of it during your ownership also plays a key role in the matter. In simple terms, when buying a used car, everybody wants it to be the closest it can be to its prime condition.

As expected, this means no visible damage to the bodywork, a well-cared interior and exterior, and lots more. However, there are some additional and more accurate ways to pinpoint a car’s current status. Ways which you should know about before listing to sell.

To begin with, potential buyers can get an idea of how much use it has had over the years by looking at the mileage. The bigger the numbers, the lesser the car’s value, since it would then mean that it is closing down on its life expectancy, relatively speaking.

Alternatively, they can also get a decent idea by checking its service history. They’ll get to see how many accidents and repairs it has been through. The more complete the picture you provide, the better it’ll be for your selling of the car.

In essence, buyers will want to appreciate that you attended to every needed detail. As long as it shows that every part is working as intended, you can upscale its value a little more instead of letting it decline.


Some Extra Tips

Overall, you want to do the following things throughout your ownership, and you want to do them consistently. Succeeding in doing so will have a positive impact on the depreciation of your vehicle. In short, these actions will minimize it.

  • Keep its mileage down.
  • Make sure to repair any damage as quickly as possible.
  • Avoid unneeded modifications.
  • Research for a proper time to sell. For instance, convertibles are sold the most during summer, while 4×4 are mostly sold during winter.
  • Likewise, try to sell it as close as possible to the release of the newest model.
  • When choosing a color, pick a popular one. Do so, and you’ll see how your buyers might be more inclined to buy it.
  • At the moment of your initial purchase, do your research regarding the car’s depreciation rate. Many models already have excellent references when it comes to accurate predictions.


Sell Your Used Car, Apply for Car Loans and More at House of Cars Arizona

With everything said and done, you should now be more than ready to list your car for sale. Maybe even buying a new one right away. Don’t know where to do so? Try House of Cars Arizona!

At House of Cars Arizona in Scottsdale, AZ we pride ourselves on providing a safe space for all sellers and buyers, as well as many other related services, like Park and Sell and even auto loans. With us, you can rest assured that your old car will find the best person to take care of it, just as you can find another great vehicle to follow in its steps. Contact us today to learn more!

Posted in Tips