What You Should Understand about Depreciation

No one can stop depreciation when it comes to vehicle values. The simple passage of time causes your car or truck to lose value every day. But, understanding residual values and how depreciation works can go a long way toward helping you get the most out of your car purchase.

How Vehicle Depreciation Works

What You Should Understand about DepreciationPut simply, depreciation is the loss of value over time. Things like cars lose value quickly and drastically. In fact, once you drive off the dealer’s lot, your car begins to lose its value. New vehicles lose approximately 11 percent of their value as soon as you leave the dealership.

Cars typically lose the steepest percent of their value in the first year, but depreciation still continues after it. The average total loss of value across the first five years of ownership is around 60 percent. At the same time, some vehicles hold their value better than others, which is why it’s important to understand residual values.

Your Vehicle and Depreciation

Although you can’t stop depreciation, you can do a number of things to slow its progress. Here are some tips that should help you to combat the effects of depreciation:

  • Minimize the effects of wear and tear Wear and tear is one of the biggest reasons vehicles lose their value. Keeping your car clean both inside and out helps minimize this kind of damage. Following the manufacturer’s recommended maintenance schedule, replacing worn tires, cleaning and protecting the fabric on your seats, and avoiding eating and drinking in your vehicle will all help you maintain that new car feel longer. Plus, it can help your vehicle maintain its resale value.
  • Avoid the steepest depreciation from the start Since cars lose the most value during the first year, it may be a wise idea to buy a used vehicle that’s only a couple years old – like a certified pre-owned car – which has already experienced this depreciation. In fact, you can get more for your money if you purchase a vehicle that’s between three and five years old. Cars in this age range are typically on a plateau, and won’t see another big drop in value until after year six.
  • Research vehicles that hold their value Cars lose their value at different rates, and there are many things that go into determining just how quickly that is. It can really pay off if you do your homework before heading to a dealership. Look at vehicle aspects that impact depreciation and choose one that ages well. Pay attention to factors like popularity, reliability, resale value, and service history. There are many valuation sites and tools available online that can help you with your research, including our Compare Cars section. Many sites also rank vehicles on a depreciation scale, making it easier to see which brands might work best for you.

Knowing how to reduce the effects of depreciation can help you maintain more equity in your vehicle. The more equity in your car, the higher your trade-in value is likely to be. If there’s little value left in your vehicle, you’ll end up with less equity to use as a down payment on another car.

Car Brands that Retain Value

Recently, Edmunds posted their list of 2018 Best Retained Value Awards. These awards rank vehicles with the highest projected private party residual values after five years. Toyota came out on top overall this year, with Honda trailing close behind. Here are some of the top vehicles that retain their value:

Compact Car:

  • Winner – Honda Civic
  • Honorable Mention – Toyota Corolla, Subaru Impreza

Mid-size Car:

  • Winner – Honda Accord
  • Honorable Mention – Toyota Camry, Subaru Legacy

Compact SUV:

  • Winner – Honda CR-V
  • Honorable Mention – Toyota RAV4, Honda HR-V

Mid-size SUV:

  • Winner – Toyota 4Runner
  • Honorable Mention – Jeep Wrangler JK, Toyota Highlander

Look to The Car Connection for Your Car Buying Needs

If you’re searching for a car you can count on that'll hold its value, look no further than The Car Connection for all your research needs. If you don’t know where to begin, or are struggling with credit issues, we can help guide you on the path to getting auto financing. Start here by filling out our no-obligation online auto financing request form today and we’ll get to work matching you with a dealer in your area.

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