Vehicle Depreciation-How to Manage this Budget Killer

Having a car you love is great but, when it comes to the value of your car, time is not on your side. Unlike some of your other assets, the value of a vehicle typically decreases over time. You won’t feel it right away—but when it’s time to sell or trade it in, you’ll surely see the effects of depreciation.

Depreciation on new vehicles
You’ve heard it before—your car starts to lose value as soon as you drive it off the lot. By how much? According to Carfax, 20% or more after the first year of ownership, then more each year, typically losing 60% or more by year five.

This number may vary as certain makes and models hold their value better than others. There are other factors that may affect the rate of depreciation, too. For example, when returned lease vehicles flood the market, the depreciation rates on those models may accelerate due to the increase in supply. Higher gas prices can negatively affect the value of large SUVs and trucks as people become more cautious about buying a gas guzzler.

How to manage depreciation
Don’t swear off owning a car completely. There are strategies to reduce and better manage vehicle depreciation.

• Buy used. Because vehicles depreciate most significantly in the first year, buying a car that’s only a year old could get you a nearly-new car at significant savings. Look for something that’s three years old or older to save even more.




• Research the resale value. Investigate the resale value of the make and model you’re considering. Choose something that traditionally holds its value.




• Avoid customization. Fancy extras like special rims or a paint job in your favorite sports team’s colors may be fun for you, but they can reduce the number of potential buyers when it comes time to sell. Play it safe and choose parts and colors that appeal to a wide range of people.




• Keep up on regular maintenance. Take care of your car routinely to show future buyers that you are a responsible car owner. This is invaluable to potential buyers. Be sure to keep accurate records.

Don’t let car depreciation scare you away from buying that new set of wheels you’ve had your eye on. With a good strategy and regular maintenance, you’ll get the most out of your car.