How Does a New Car Lose Value After Driving Off the Lot?
- You do not have to be a car connoisseur to know that cars do not age very well. In fact, the minute you can see the sign of the dealership in the rearview mirror as you're driving away, it's worth less than what you paid for it.
Depreciation is the value lost over a period of time, and a car is a depreciating asset. With new aesthetics, new features and new body styles being produced daily, your new car won't be new within a very short period of time. - Buying a car is not an investment, and it should never be viewed as such. A new car depreciates the minute you drive it from the showroom floor. In the first year of ownership, a new car can lose up to 20 percent of its value, and by the fifth year, your car will depreciated by over 65 percent. Supply and demand will also affect how fast a car depreciates. The well-engineered and designed cars fall into this category, so they will lose value at a much higher rate.
Tony Twine, director and senior economist at Econometrix, explains the depreciation in simple layman's terms: "During the first year, the value of the car decreases at a steep rate. For the next four years, the car depreciates at a gentler, slower pace, with a further step down in value in the sixth year. Beyond this, the value of the rate of depreciation flattens out." On average, the life expectancy of a car is 7 or 8 years, so new car buyers should think long and hard before signing on the dotted line. - Purchasing a new car is very exciting, but it is not money well spent. However, owning a car is a necessity if you live in a place with no or limited public transportation. But just because owning a car is a necessity, there is no law stating it has to be brand new.
The purpose of purchasing a car is to get from point "A" to point "B," and a dependable used car that depreciates at a much slower rate can get you to the proper points just fine. - Historically, used, or "pre-owned" as they are now called, cars have been given a bad rap, but they have come a long way. Purchasing a late-model pre-owned car makes more financial sense than buying a car that will lose 20 percent of its value in 20 minutes. Pre-owned purchasers do not have to brace themselves for the biggest depreciation hit that happens when a new car turns a year old--they dodge that loss and save thousands by purchasing after that time.