Understanding Automobile Depreciation

If you don’t understand depreciation, it will come back to haunt you when you buy a new car. Depreciation is simply the decrease in value over the lifetime of your car.

As soon as you drive a car off the dealer’s lot it starts to lose value. While you can not stop depreciation of a new car, you can reduce it with some diligent research.

In general a used car loses 15-20% of it’s value each year. New car’s can lose as much as 20 - 25% in the first year. This significant drop in value is why many people find themselves in trouble after a year or two and owe more on their vehicle than what it is worth. Generally trading-in the vehicle only results in being in a worse situation (often called being upside down in your vehicle) This very scenario is why I recommend when buying any car you put at least 25% down to protect yourself in the future.

So what can you do? R-E-S-E-A-R-C-H ! Check the major sites like www.kbb.com www.edmunds.com and www.nadaguides.com for reports on the best resale values. If you must buy a new car, stick to one who’s value will drop the least in the next few years. In 2007 some of the best resale values are in the Acura TSX, Honda Civic, Pontiac Solstice and the BMW 5 series.

If you have decided to buy a used car, congratulations, you will avoid that first year hit to value. It’s a balancing act between age and reliability. Buy the oldest car with the best reliability and you will save the most money in the long run. With longer factory warranties being offered, used vehicles are becoming a better deal.