For most Americans, outside of buying a home, purchasing a car is one of the largest financial decisions they will make. Data shows that cars can lose more than 10 percent of their value during the first month of ownership and 5 percent simply after you drive off the lot.
Car depreciation can affect how you are able to purchase your next vehicle, so what does it mean?
What is Car Depreciation?
Car depreciation is the rate in which a car’s value decreases over time. For example, if you purchase a vehicle for $20,000 after 5 years it may only be valued at $10,000. Meaning it lost $2,000 in value every year. Car depreciation rates are not standard. Things like make, model, features, and even color can change the rate in which your car depreciates.
Why Is It Important?
Unfortunately, if you finance the purchase of a vehicle, most loans don’t take depreciation into consideration. This becomes difficult if you choose to trade-in your vehicle and purchase a new one.
How I Can Work Against Depreciation?
New cars depreciate the fastest. By the end of the first year, they can lose anywhere between 10% to 20% in value, after that, they continue to decrease in value at rates of about 15% to 20% per year. This can be a loss of up to 60% in the first 5 years!
By purchasing a used car that is about a year old, buyers can save up to about 30%. If you are open to buying an older vehicle you can save a good chunk of money long term, after the first year, depreciation averages about 17.5% a year. This is good to keep in mind because when it comes time to sell or trade-in your vehicle, it’ll retain more of its value.
Whether you purchase a vehicle new or used is an important financial decision. Always be sure to consider long term effects of purchasing a new or used vehicle especially if you choose to finance your vehicle. For questions about Camino Federal Union car loan offers, qualifications, contact one of our Member Advisors who can help.