How to Understand Vehicle Depreciation

When you plan to finance a new car, you probably consider the sticker price, car maintenance and insurance. What many people fail to consider, though, is car depreciation. Car depreciation is when your car declines in value due to wear and tear or market conditions, and is important to consider before you buy a car. If you understand how vehicle depreciation works, you should be able to minimize its effects. You want your car to hold its value as much as possible, especially if you intend to resell it.

Instructions

1

Be aware that in the first year you own a car, it may depreciate 20 to 30 percent, according to Lending Tree.com.

2

Factor in the price of gas. When gas prices went over $2.50 a gallon, the market decreased for gas-guzzlers, making that type of vehicle depreciate more. According to The Christian Science Monitor, from information gained from Autodata Corp in April 2009, SUVs depreciated 15 percent from a year ago.

3

Assess how long your commute is. Age is one factor for depreciation; mileage is another. If you have a longer than average daily commute (average being more than 16 miles one way, according to an ABC News poll), you will lower the price of your car more than someone who drives an average or less than average amount.

4

Study consumer guides. Cars with low ratings will depreciate more than highly rated cars because the resale value is less on a poorly rated car. According to The Auto Channel, using 2006 model cars, the Honda S2000, Mini Cooper and Acura TSX have the highest resale values (Honda, 51.7 percent; Mini, 51.5 percent; Acura, 47.7 percent). The Kia Rio, Hyundai Accent, and Kia Spectra have the lowest resale values (Rio, 20.7 percent; Hyundai, 23.0 percent; Spectra, 24 percent). Poor performance and design quality will depreciate a car faster than a higher quality car will depreciate.

5

Look at the "blue book" value of the car. You can see if the car you want holds its value or not by seeing what the resale value is.

6

Try to put down a sizeable down payment and shorten the loan term. If you only put down the minimal amount and you finance your car the maximum length of time, your car may depreciate faster than you can pay for it. If you have to sell your car while you owe more than it is worth, you will be in a bad financial situation and will lose money.

7

Schedule regular oil changes and maintenance appointments. Keeping your car in good condition will help your car keep its value.