A MUST KNOW TERM FOR CAR LOVERS
Car Depreciation: Depreciation, we all were got introduced by this word during our school life but that time the mind set was to learn the definition and score the marks.
Most of us are not aware about the practical use of it. Let’s learn and boost our knowledge about the term depreciation.
So, today we are going to discuss about car depreciation as it is very important for passionate car lovers to understand how it works and can give you at least a little bit of
an advantage when you consider buying or selling a car, as at the end of the day money matters so one must know what to pay and how much they can get for used car? So here are the ways to calculate your money.
What is Depreciation?
The expensiveness value of an asset decrease over time due to use, wear and tear or outdated, this decrease is measured as depreciation or in simple words, you can say depreciation is refer to the loss of market value of a tangible (physical) assets.
This word is frequently used in business of buy and sell. Nowadays it’s a trend to buy and sell used things like electronic gadgets, mobile phones, machines, cars and various vehicles.
The reason behind of this is launching of new products with latest technique and features almost every month in this techno-friendly world everyone wants to be a part of latest invention and wish to own
that, this process involves buying and selling of used products. The automobiles are also not untouched with this trend and business of resale. Specially if we talk about buy and sell of used cars. The business is booming as cars are matter of comfort and status.
How car depreciation calculation is done?
You must get amazed when you come to know the value of car drops instantly just after you purchase it and take it for your first drive, and then it depreciate with every passing year. This drop in value varies between makes models and brands but typically is between 15-35% in the first year and up to 50% or more over three years.
We can understand it by taking a example for a new car. The rule of thumb is that a new car generally loses 10 percent of its value the moment it leaves the lot. That means, if you drove your $25,000 new car to the end of the block and decided you didn’t like it anymore. The most you could hope to get back from the dealership would be $22,500 even if you never removed the plastic from the floor mats.
In general, new cars lose 15 to 35 percent of their value each year for the first five years you own it. However, the rate of depreciation can be even worse for cars that have lower brand-name appeal and fewer options.
Factors affecting a car’s depreciation rate:
- Supply and Demand: One of the basic reason of depreciation of used car depends on supply and demand of used cars in market. That means the more used cars that are available to buy, the less valuable your car becomes.
- Mileage: The average mileage of used car is around 10,000 per year. If it is more in miles it directly less your car worth.
- Reliability: Some cars have negative reviews by customers and that fix a perception among buyers and they use to avoid that particular car brand or model.
- General Condition: How well or worse you have maintained your car also decide the depreciation rate any damage reduces the value of your car.
- Service History: The service book should have stamps or receipts showing servicing in line with the manufacturer’s recommendations.
- Number of Owners: The fewer the better. So check the number of previous owners on the car’s logbook or V5C registration.
- Length of Warranty: Three years is good. But some manufacturers now offer as long as seven years, which is a bonus when selling your car.
- Desirability: Some models are ‘face-lifted’ or replaced every few years, while some go on for 10 years or more. The more recent the model, the better it will hold its value.
- Size: Big luxury cars tend to depreciate more than smaller cars because they cost more to run and have higher bills for parts and maintenance.
- Fuel Economy: The more miles per gallon the better for many buyers.
Which cars lose their value soon?
Generally, luxury, midsize and compact car models depreciate more in comparison to other models.
Luxury cars are by definition, luxury only when they are new or nearly brand new as with passing time luxury car gets old. They are no longer considered luxury cars and drops radically in resale value to become a sort of cheap car with luxury badge. Luxury cars are costly to maintain especially when they become old and this impact their continuing value. Servicing and maintaining old luxury car costs more or much more costly compared to more mass market cars.
Few examples of such cars are Cadillac escalade, jaguars-type Mercedes, Benz s-class. On Other hand midsize and compact cars because they have to wait for their updated version. Such as Chrysler and Saab, Chevrolet Cobalt, Mercury Grand Marquis yet has not received any up-gradation and it seems no one wants to buy them.
Smart ways to minimize the depreciation:
- Make a smart choice before buying a car make sure the car you are buying is updated model with latest feature and techniques. And your colour choice must be classy. And sober colours like: black, white, grey, silver and blue are always are safe ones.
- The second thing you have to care about is mileage as much possible keep the mileage down.
- Maintain your car well- a full-service history gives potential buyers peace of mind. And satisfaction, keep all your car documents including service records and receipts safe and in one place.
- Be a smarter one sell your car well before its replacement or latest model arrives in the market. And if possible consider leasing rather than owning, then there’s no worry about the car’s depreciation.
Last but not the least the things you should not ignore. Do your homework before buying a car check how much value have gone down on older models and similar vehicles from the same manufacturer. Select a right option while buying which suits much for example, metallic paint and leather are best on executive cars, while built-in sat nav and air con are desirable on mainstream cars.
Depreciation is one of the major factors. There is no way to predict the depreciation on a vehicle but if you get aware about the term you can take surely some advantage. And get profitable and worthy deal either you are a buyer or a seller.