How to Calculate Your Car Depreciation Value

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January 27, 2012

Most new car buyers shudder at the idea of car depreciation value. Buying something at great cost, such as a home or antique furniture, usually means that over the years the value will increase. This is not the same with most new cars. Owing to wear and tear on a vehicle, increased mileage on the odometer and service and repair costs, a new car will never be valued at higher than it cost.

Step 1: Buying a New Car

When you choose to purchase a new car you will no doubt be aware that as soon as you drive it away you will have lost at least 20 percent of its value. Paying $25,000 for a brand new car you will lose around $4,500 in the first year alone. Examining the cost you pay for a new showroom condition vehicle, you must bear in mind that you will be paying the retail cost of the car to whomever you purchase it from. As soon as it leaves the lot you will be driving a wholesale vehicle. For example, you drive off and you change your mind. You decide you would like to sell the vehicle back to the dealer. He will offer you the wholesale value of the car and that will be somewhere between 10 and 15 percent less than you just handed him for it.

Step 2: How the Value Depreciates

Looking after a car is not cheap. Before paying for the expensive vehicle and driving it away you will have taxes, tags and insurance costs to consider. Every month you will pay for insurance, gas to run the vehicle and the costs of service and repairs. Over the life of the vehicle you will be very likely to pay the exact cost of it all over again just to keep driving it. Service and repair will depend on the reliability of the vehicle and the amount of mileage you cover.

Step 3: Yearly Calculations of Loss

By the end of year two your car will have depreciated by a further $3,000. This is largely caused by the car being used. The mileage will increase, newer, more modern cars will have been devised and your vehicle will be worth less still. By the end of year ten, your $25,000 car will be worth a mere $2,500. Calculated at a yearly percentage you are going lose in the region of 15 percent each year, with the exception of the 20 percent you lose the first year.

Step 4: Avoiding Depreciation

Lowering car depreciation rates is difficult but not impossible. You will always lose something on your vehicle's value. However, by buying at the right time, you will be able to purchase the vehicle for a price which is closer to the wholesale value than to the retail. End of season sales are a great time to buy a brand new vehicle. At the end of each season, the new models are about to be unveiled and the older, last year models will be on offer at low prices. Buying vehicles with slower depreciation will also keep some money in your pocket.

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