What is Car Depreciation?

on May 05, 2022

While shopping for your next car, you might have asked at one point, “Why would anyone bother buying a used car?” Brand new cars are faultless and technologically advanced, while used cars have no warranty and may carry some mechanical problems.

However, used cars are cheaper and more importantly, depreciation has less effect on them. Most financially conscious buyers place a high consideration in depreciation and so should you. So, what is depreciation?

Depreciation is the decrease in the value of tangible assets like cars due to wear and tear obsolescence, and ageing. Compared to insurance and maintenance costs, a depreciation cost is far larger. In fact, a new car can lose 20% to 25% of its value after a year. After year three, more than half of the vehicle’s original value will be gone.

You may not feel this loss of value while driving around with your car, but you’ll bear the effect of depreciation if you decide to sell it. That’s why some people choose to buy a used car. Its cheaper price will accrue less depreciation cost compared to the more expensive price of buying a new car.

But whether you’ll be buying a new or used car, we can give you some tips to maintain your vehicle’s value and lessen the effect of depreciation. These are the steps that you need to do before and after purchasing your vehicle.

Make A Smart Purchase

Different car makes (brands) and models have varying depreciation rates. You’ll need to research which ones retain value before making a purchase. It’s quite easy to do so, there are many articles and forums online discussing this subject. There are many factors that affect the depreciation rate of a vehicle.

  1. 1. Car Make

One of these factors is the car’s make. You should purchase a vehicle from a reputable and well-known make such as Toyota, Subaru, Mazda, and Ford. They have gained a reputation for high-quality and reliable cars, so their products have a slower depreciation rate. Never buy a car from an unknown make no matter how cheap it is.

  1. 2. Volume and Rarity

Another factor that you should consider is the car’s volume. Avoid buying a car model that’s popular and can be seen in large quantity on the streets. Since there are so many of them, they will have cheaper resale prices in the used car market. Instead, buy a model that has a lower production number. The rarity of the car model makes it retain more value even after some years.

  1. 3. Vehicle Colour

Although it’s unwise to buy a popular car model, it’s advisable to buy a vehicle of a popular colour. Most people don’t like cars of an unusual colour. So, if you have a car in a desirable colour that most car buyers want, then you can ask for a higher price if you decide to sell your car.

  1. 4. Specifications

Car models with higher specifications and features also have a slower depreciation rate because they are so desirable. So, choose a vehicle with good fuel economy, high safety ratings, and outstanding performance because it will retain its value better.

Maintain Your Car

When servicing your car, try to get a logbook service as this serves as evidence that the car has been serviced regularly. Also, make sure to keep any other maintenance records so you’ll have evidence of any work done to the car.

Clean the car regularly. If not in use, store the vehicle in the garage to keep it away from possible harm. The sun, rain, and dirt can speed up the natural wear and tear process as well, so make sure the car is well-protected.

Keep The Mileage Low

A car’s odometer reading also affects its market value. As the vehicle increases its distance travelled, it also loses value. So, keep the vehicle’s mileage as low as possible. If you have another vehicle at home, use them alternately so the mileage of both cars will not increase as quickly. If you want to maximise your resale value, sell your car before it reaches 100,000 kilometres or the warranty period expires. Generally, most new cars come with 100,000 kilometres for 3 or 5 years warranty.

Finance your next car with CarFinance

Now that you know what depreciation is, you can take it into consideration when shopping for your next car. Also, do your best to retain the value of the car after you buy it. It will not only help you financially both when buying and selling a car.

But before you buy your next vehicle, make sure to get a pre-approved loan first from CarFinance.com.au. It will give you confidence at the dealerships when shopping around for a car model that’s right for you.

Call CarFinance.com.au today to speak with one of our finance experts and get the best financing for your new car.