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"Car Depreciation: If a vehicle
is bought from new then by the end of the first year it's value may have fallen
by 40%."
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Depreciation of Luxury Vehicles and Automobiles
Car depreciation represents the
amount of money lost on the vehicle purchase price up to the time of re-sale.
For example: A vehicle is bought for $20,000, kept for 3 years and then sold
for $12,000. The depreciation will therefore be $8,000. Note: car depreciation
does not include any costs due to
car finance or the actual running costs of the vehicle, such as
auto insurance.
When Does Car Depreciation Cease?
If a vehicle is bought from new,
then by the end of the first year its value may have fallen by 40%.
Depreciation over the following years drops off. By the end of the second year
its value will have decreased by 50% and be down to 60% by the end of the third
year.
Eventually, after about 10 years, depreciation will drop to a point at which
many cars will have approximately the same value.
How Can I Minimize Car Depreciation?
The best way to minimize vehicle
depreciation is to avoid buying from new. Since the value of a new vehicle
drops the most during the first year it makes financial sense to buy when a car
is about one year old. Also note that some car insurance companies do take
significant depreciation into account during the first year. If a car is
written off during this period, then it may not be replaced with the full value
of new car. Note: you can protect against this type of financial loss by taking
out GAP
Car Insurance.
Generally, the older the vehicle you purchase the less money you will lose in
depreciation. However, you do have to consider the
mileage and overall condition of the vehicle you buy. Also consider
that older vehicles may not be sold with a
used car warranty,and consequently the risk of having to pay out on
repairs may be higher.
Once you have decided on what and
where to buy your next car, then the next best way to minimize
depreciation is by shopping around to get the
best deal on car price. (Also, if you are taking out finance then you
will pay less in loan charges).
Calculating Depreciation On An Automobile
Given that it can be difficult to
predict the future value of a vehicle, the easiest thing to do is run an online
search for a vehicle similar to the one you are thinking of buying, but with an
earlier registration date. This will give you an idea of how much you can
expect your vehicle to devalue over a certain period of time. For instance, if
I were to buy a new vehicle at today's value of 20,000, I could buy the same
make and model, that is three years older, at a cost of 12,000. So therefore,
over a period of three years, the vehicle would potentially depreciate in value
by 8,000.
