"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.



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22 May 2008
Vehicle Depreciation