How does depreciation impact my choice?
Depreciation can be the bane of a new car owner’s existence — but used car owners also need to account for it. Basically, depreciation occurs when your car loses value after you first purchase it. The act of changing hands between a dealership and a buyer or between two buyers will lead to your car being worth less, which means you could quickly become upside down on a loan.
How hard depreciation hits you depends on the car you buy. A new car typically loses 20% of its value the moment you drive it off the lot. For the average $30,000 car, this will decrease its value to just $24,000 if you sold it on the same day. And the longer you drive a car, the more it depreciates. Mileage, wear and tear and other mechanical issues could further decrease your new car’s value, making it that much harder to make back your money when you sell it.
Used cars also depreciate, but at a much slower rate. Because the majority of depreciation has already occurred, you may only see your car drop in value by a few thousand dollars before you sell it. This is why many people consider a used car to be a better deal. But just like with new cars, any mechanical issues or excessive mileage could quickly diminish your car’s value, which will make it more difficult to sell for a good price.