How Much Does a Car Depreciate?by Michael Keenan
What is Depreciation?
Depreciation refers to the amount of value an object loses over time. Cars tend to depreciate very quickly. Within the first year, a car's value drops 15 percent to 20 percent. Depreciation over the next four years is about 10 percent per year. Depreciation becomes most apparent when you sell your car. People who have extended payment plans or who put down a small or no down payment will owe more on their loan than the car is worth because of heavy depreciation in the early years of the loan.
Factors Affecting Depreciation
The mileage on the car is a significant factor in determining its depreciation. An engine that has been running for 100,000 miles is more likely to break down than an engine with 30,000 miles, which reduces the car's potential resale value. The reputation of the auto maker is also a factor in depreciation. Cars made by companies that are perceived to produce longer-lasting automobiles will command a higher resale price than those perceived to be of poorer quality. Consumer Reports rates used cars and how they retain their value each year in its annual auto issue. Depreciation is also affected by other factors that could affect resale, such as an unusual color or a lingering smell of cigarette smoke.
Ultimately, the depreciation rate will be determined by the person who buys your car and how much he is willing to pay. The best way to minimize depreciation on your car is to take good care of it. The car's appearance will affect the buyer's first impression. Waxing is an inexpensive way to help a car look its best. Keep good records of all maintenance you've had done on the car. Showing that you have taken good care of the car will increase a buyer's confidence in its reliability.