The Car Depreciation Budget Killer And How You Could Avoid It

A great deal of drivers are aware of how expensive cars are to buy and maintain with insurance, petrol, repairs and maintenance costs like new tyres and servicing.

In fact, according to and annual study by the AAA group the yearly cost for a new vehicle is over $10,000 ($9,282 per year USD).

Does this cost sound right to you? If not, maybe you haven’t considered the biggest overlooked cost of owning an vehicle, depreciation.

Depreciation, is it really that much?

The single biggest measure of how quickly a car loses it’s value is still depreciation and according to the group it accounts for more than one third (36%) of the average annual cost.

Typically, the moment you drive the car off the lot, it has already lost value. By the time it’s a year old, the vehicle has lost nearly one-third of its value, according to Edmunds data.

The secret to minimising your depreciation costs are still: “Keep your car for a long time and keep it well-maintained or even consider buying a quality, pre-owned vehicle,” said Robert Sinclair, a spokesman for AAA Northeast.

If you are looking for a new car, some other things to think about on top of the purchase price are:

  • Finance rate
  • Length of time you will own the car

Stretching the length of time of your loan will lower your payments but you may end up owing more than what the vehicle is worth.

How to minimise car depreciation

By buying a pre-owned vehicle in good condition, you can keep your costs way down over that time. (A certified pre-owned vehicle, usually one coming off a lease, often includes warranty coverage, which greatly reduces the worry that can also come with buying a used car.)

Five years of strong new car sales have created a large supply of “gently used” off-lease vehicles, and these are priced at a significant discount, according to Cox Automotive. Many potential new-car buyers looking for good value will be drawn into this used market, the company said.

About 35% of new cars are priced below $30,000, compared with 54% in 2012, according to another Cox Automotive report. Separate data from Edmunds show that the price of a 3-year-old used car — the age of most autos coming off leases — averages $13,535 less than a new car. In 2010, the difference was less than $9,000.

If you are considering a new car purchase and the above seems a little complex, or you simply want help sorting through the details, let us know and we will get in contact with you to arrange an obligation free discussion.