Car depreciation and how to beat it

image credit: TRED.com

We’ve all heard about how the second you drive off the dealer’s lot, your new car starts to depreciate. In fact, most cars lose 10% of their value on that first drive-off.

That first year after buying a new car is a killer: the value often drops 20% or more. After that, you can expect it to lose about 10% of its value each year.

Is there anything you can do to avoid this massive hit? There are a few things that might help:

Buy used

Some people are completely set on buying a used car, no question, no matter what. But if you’re not… buying used is the best way to go. Because you can often get a relatively new car with low miles, in like-new condition, yet the original buyer absorbs that big 20+% loss. 

And it’s actually not too hard to find these low-mileage, like-new cars for sale. Often times someone has an unexpected change of situation—maybe they find out they’ve having a baby, or need to move overseas, or somewhere with a different climate—that requires a different type of car. Which means they need to sell quickly, and gives you a perfect opportunity to swoop in and get a great deal.

If you do this, it’s really ideal if you can get a car new and low mileage enough that it’s still covered under the original manufacturer’s warranty. That gives you total peace of mind, and removes the unknown variable of unexpected repairs—which could quickly become enough of a financial liability that they’d cancel out the cost advantage of buying used.

Get a great deal

This seems like it would go without saying, but you’d be surprised how many people really don’t do this. You absolutely can (and should) negotiate hard when you’re buying a car. You can go to sites like Edmunds and NADAGuides to find out invoice pricing (what the dealer paid for the car), and current discounts and incentives. It’s also a good idea to reach out to all the dealers within your area (and eve those outside of it, especially those further from big cities) to see who will give you the best price.

image credit: Kelley Blue Book

Choose a car that depreciates less

While virtually all new cars lose a lot of value almost instantly, some makes and models take less of a hit than others. You can check out sites like True Car and Kelley Blue Book to see which cars hold their value best, and see if any of the lower-depreciating options interest you and meet your needs.

Consider your options

Well, not your options, exactly, but the ones on the car you buy. Depreciation and resale value are mostly tied to the make and model, but a car with more desirable equipment is likely to get you more money when you go to sell it. 

For example, if you buy an SUV, having four wheel or all wheel drive is very desirable to most buyers—probably because that’s the type of vehicle they they want to be able to take to the mountains, and drive in wintery conditions. Generally SUVs and trucks that don’t have it attract a smaller pool of buyers, so two wheel drive SUVs are harder to sell and will probably not hold their value as well as the same model with four wheel or all wheel drive.

Things like color—especially extremes—can also affect how much you get when it comes time to sell. If you buy the bright lime green one, or any other bold, unique color that’s not for everyone, your car won’t be worth as much as the same thing in a less polarizing color.

Keep it up

The way you maintain your car and the kind of condition you keep it in will definitely affect depreciation.

Keep it in a garage? Keep it clean? These sorts of things protect your investment and are important to buyers. If you take care of the paint, and the interior, and try to avoid dings, scratches, and other types of wear and tear as much as possible, you’ll have an advantage.

Washing your car regularly is part of helping it hold its value.

Washing and vacuuming your car every few weeks goes a long way toward keeping it looking new, too—if it looks and smells clean, you’ll definitely have an edge when you go to sell it; a lot of buyers will pay quite a bit more for a car that’s in excellent condition.

And you’ll definitely want to keep on top of all scheduled maintenance for your car. Many buyers will ask to see those records, so they know the car has been cared for and maintained according to the manufacturer’s recommendations.

Try to keep the miles down

Most of us can’t help putting miles on our car—the whole reason we have it is to drive it where we need to go. But if you’re considering renting it out on Turo, for example, and put a lot of additional miles on it that way, your resale value will take a hit. And that depreciation might ultimately wipe out any money you made by renting it out.

Ultimately, buy the car that you want; you’ll probably be spending a lot of time in it, so get what makes you happy and works for your lifestyle and budget. But if you’re open to a used car, that can be the best of all worlds. And whatever you end up with, taking care of it will help ensure that it looks good and runs well for years to come—and that will always help you minimize depreciation.

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