Watch Out: Cars That Depreciate The Fastest
One of the toughest pills to swallow after buying a new car is its massive depreciation that hits you as soon as you leave the lot. Once the car is sold, it is no longer considered new. An average vehicle loses over 38% of its value after three years of ownership.
Yet, some models depreciate at an even faster rate. This is bad news for owners who paid for their brand-new car in full. The cars that depreciate the fastest are mostly high-end luxury vehicles or affordable compact cars. Some of the key factors that determine the rate of depreciation include mileage, quality, and design.
Although depreciation is widely overlooked when purchasing a new car, buyers need to take the rate of declining value into account so they can avoid going upside-down on a car loan. The higher the rate of depreciation of your vehicle, the lower the resale value you will receive when you wish to sell it off.
Why Cars Depreciate
Depreciation is one of the main factors to consider when calculating the true cost of owning a car. The basic formula used by the automotive industry estimates a five-year ownership period on average to determine the depreciation value of the vehicle.
Below are some of the reasons why certain cars depreciate quicker than others:
- The average mileage driven by a new car amounts to around 10,000 miles per year. The more miles used, the less valuable the car.
- Many cars have a reputation for unreliability. This is generally based on customer satisfaction surveys.
- The higher the number of times a vehicle has changed hands, the faster a car depreciates.
- Any damage to the bodywork, interior, and exterior will reduce the value of the car.
- Big luxury cars tend to depreciate faster than smaller cars as they cost more to run and have much higher bills for parts and maintenance.
How To Limit Depreciation
While you can not possibly put a cap on the depreciation amount of a vehicle, you can take measures to slow the pace. Here are some ways to limit it:
- Always keep the mileage down.
- Look after the car and repair any damage done as soon as possible.
- Try to buy a new car to avoid the steepest depreciation.
- Try to avoid any modifications such as spoilers, flared wheel arches, or wide wheels.
- Sell the used car at the correct time of the year. For example, list convertibles in the summer and 4x4s in the winter.
- Try to lease the car instead of owning it. Accordingly, you will not worry about the car’s depreciation, as it will be built into your monthly payments.
- Do your research properly before buying a car. Check how much values have gone down on older models or similar vehicles from the same manufacturer.
- Check for the right options before buying the car. An example might be the metallic paint and leather that are best on executive cars.
- Maintain your car, as a full-service history gives the potential buyers peace of mind. Keep the car's documentation stored securely.
Cars To Stay Away From
If you wish to avoid a less than average resale value, here are some car models that you might want to stay away from.
It is said that this SUV uses some extremely subpar equipment in recent electronic models. Owing to these allegations, the depreciation rate for this brand is high. For instance, a Range Rover worth $60,000 is easily available for resale at around $5,500 following a few years on the road.
For a modestly priced car, depreciation is bad enough. When it comes to the Mercedes-Benz S-Class grand edition model, the sums lost will bring tears to your eyes. It retains around 26.7% of its value after just three years.
Launched in the 90s, the Escalade is now a slow seller in both the new and used markets. After five years, the model dropped 60% in value. This brand had a sticker price of $80,000, but you can get models for less than $30,000 these days.
Carmakers With Financial Issues
Many experts will warn you away from any carmaker that has financial issues. Carmakers such as Chrysler and Saab have experienced steep value losses for particular models including the Sebring and the 9-3 respectively. An 80% drop was recorded compared to the purchase price for the Chevrolet Cobalt and Mercury Grand Marquis. The primary driver for their rampant depreciation is that these models have not undergone design changes or updates in four years.
The value of a car falls the minute it is driven off the lot. Before buying, ensure you comprehensively research the most reliable carmakers and models, apart from checking resale values that correspond with your driving patterns. Armed with this information, you can ensure a better trade-in or resale value down the road.