Most things you buy naturally decrease in value once they’ve been used. Usually, this value loss isn’t a big deal. When you buy a new pair of shoes at Macy’s, for example, you don’t think much about reselling them for the price Macy’s charged. But when you buy a new car, it might bother you that the car is worth less the day after you buy it.
When Auto Depreciation Matters
A new car loses, on average, about 11 percent of its value as you drive it off the lot. The same car will then continue to lose 15-25% of its value annually for the next five years[1]. That’s the bad news. The good news is that depreciation costs don’t impact you much unless you sell or wreck the car. In either situation, the buyer/insurance company will only pay you for what the car is worth — which is what you paid minus depreciation.
If you tend to buy new cars every few years, then depreciation costs will add up. You can do two things to minimize the sting:
- Lease. Leasing generally allows for lower out-of-pocket expenses than buying. You’ll still pay for the car’s depreciation during the lease period, but your downpayment and monthly payment can often be lower on a lease vs. a loan for the same car. That translates to lower overall costs for each vehicle you drive.
- Make a larger downpayment. If you don’t want to lease, think about increasing your downpayment. Doing so will minimize the chances that you’ll owe more than the car’s worth when it’s time to sell. You’d essentially be paying for some of the depreciation upfront, rather than financing it and paying interest.
Choosing a Car That Holds its Value
Another strategy for managing depreciation is choosing the right car. A 2013 Jeep Wrangler, for example, holds its value better than a Toyota 4Runner or Honda CR-V from the same year. According to Kelley Blue Book, the Wrangler’s resale value at 36 months is 70.3%. After five years, the Wrangler is worth 57% of the purchase price. The 2013 Dodge Charger also holds its value well, with a resale value of 53.7% at 36 months[2].
On the flip side, TheCarConnection.com reports that luxury cars like the Jaguar XJL Supersport and Mercedez-Benz CL 65 AMG tend to lose their value very quickly[3].
Do you think about depreciation when you are buying or leasing a car? Leave us a comment and let us know!
Visit JT’s Chrysler Jeep Dodge of Lexington and Columbia to learn more about new and used Jeeps. We’re here to answer your questions and help you select the Jeep that suits your lifestyle! For more information, visit http://www.jtsjeep.com.
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