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What you should know about depreciation on cars to sell your used car

Depreciation is one of the main factors that impact the sale price of a used car, since these, the vehicles, are among the consumer goods that we buy and sell and which are most strongly affected in their value, regardless of who buys it, that is, if it is a vehicle for private use for a person, for a company or for public use, in any of the cases depreciation occurs; here we will focus on depreciation for private use vehicles, that is, that we buy for our families, homes or to drive to our daily activities.

 

Next, we are going to explain what you must take into account to understand the effect of the depreciation of an automobile on the car market and those aspects and factors that you must know and to understand why this is not something static and can change over time.

What is depreciation and how does it affect the selling price of a car?

The depreciation effect on a car is the decrease in its value due to different reasons, naturally the main reason that a car depreciates is related to the "elapsed life" of the vehicle at the time of being sold.

 

Lets to see this through a practical example To understand what happens with this effect of loss of value in a practical way, it can be defined as follows:

You buy a vehicle for $40,000 dollars.

 

Once you have taken it out of the dealership, the car becomes to used car, and automatically its value is reduced by an average of 10%, that is, the car has lost 4,000 dollars of its value just by changing its condition from new to used, and now the car has a price of $36,000 dollars, 4.000 less.

 

If after a year of use (general use, measured and a vehicle in very good condition) and you want to sell the vehicle, you will not be able to sell it for $36,000 dollars, because most cars in the first year, compared to their car market value, depreciates between 20% and 30% (there are factors that generate this range), then, it is very likely that, over the course of a year, you can obtain between $32,000 and $28,000 dollars.

In the course of a year, the car depreciates by 10% of its value just by signing the purchase papers and taking the car brand new from the dealership and then, by the end of the year, it will have already lost another 10% of its value, now and at least, the car can be sold at 20% less than its initial value when it was new.

 

In the depreciation of the value of a vehicle, different factors can be considered, for this reason we speak of average values with respect to what is known as the average use or "natural wear and tear", however, this doesn't mean that the value cannot vary, for example, increasing, since there are factors that affect it and come into consideration regarding the resale value of the car, factors such as the type of use, the type of maintenance and service history as well as other aspects that come into consideration after a significant period of time, such as engine condition and fuel consumption after 5 years.

Car depreciation basics

The first and what is the starting point, the depreciation begins at the moment in which the car leaves the dealership

 

Depreciation is an accumulated effect that occurs year after year, that is, the time elapsed with respect to its resale value (selling a used car) naturally reduces year after year

 

Depreciation is an exponentially decreasing curve.

In general, the effect of loss of value is calculated at 5 years since this is considered the period with the longest useful life.

 

The resale value of the car due to this effect is drastically reduced in the first 3 years where it can lose up to 40% of the initial value

 

During the first 5 years, the cumulative loss in value due to depreciation is approximately 60%

 

The resale value reduction effect slows down significantly after the ninth or tenth year, being almost zero regarding automotive market

 

There are 3 types of depreciation effects, which can be called High, Medium (general or average) and Low, where naturally there will be variations in their percentages

 

It is important to keep in mind that depreciation is not necessarily constant, although percentage values are generally mentioned that seem "constant" and consecutive from year to year, there are different conditions that can affect or accelerate the depreciation of a vehicle and increase the percentages, and, in very particular cases, reduce it.

 

There are factors that can affect, modify or even eliminate this effect in a vehicle, such as changes in the market, demanded characteristics or that the car has belonged to a famous person and its value, instead of being reduced, can already be increased, because the vehicle obtains an added and unique non-tangible value due to a factor external to the automobile market.

 

It is important to bear in mind that there are cases where a vehicle that may be new, zero kilometers, has lost value because, for example, several years have passed since its launch on the market and this means that its sale value as new is reduced, therefore, we must also consider that this is a factor that affects the base price from which we start to calculate the depreciation of a vehicle.

How fast does the value of the car decline with depreciation over the years?

We must keep in mind what we explained before regarding the 3 types of effects that exist and are defined at a general level, but of course, we must not lose sight of the fact that there are particular effects due to other factors in the market, such as, for example, the perception that exists about a certain brand or about a particular model.

Below we will show two of the types of effect, the average or general depreciation effect, which is the most common and on which the market in general tends to evaluate, and the high depreciation effect to have a point of reference on the difference.

 

Percentages of loss in value year over year due to average depreciation on cars

As we mentioned before, the effects are calculated for 5 years and it should be considered that there are cases where the effect on the percentage of the decrease in resale value is less or greater due to different factors, but what we will show next are general percentages

 

First minute – 10% less on your purchase value

 

First year of use – 20% less than its purchase value

 

Second year of use – 30% less than its purchase value

 

Third year of use – 40% less than its purchase value

 

Fourth year of use - 50% less than its purchase value

 

Fifth year of use - 60% less than its purchase value

 

Sixth year of use - 70% less than its purchase value

 

Seventh year of use - 74% less than its purchase value

 

Eighth year of use - 78% less than its purchase value

 

9th year of use - 80% less than its purchase value

 

 

Percentages of loss in value year over year due to the effect of high depreciation on cars

First minute – 10% less on your purchase value

 

First year of use – 35% less than its purchase value

 

Second year of use – 50% less than its purchase value

 

Third year of use – 60% less than its purchase value

 

Fourth year of use - 70% less than its purchase value

 

Fifth year of use - 75% less than its purchase value

 

Sixth year of use - 80% less than its purchase value

 

Seventh year of use - 85% less than its purchase value

 

Eighth year of use - 88% less than its purchase value

 

9th year of use - 91% less than its purchase value

 

As presented above, the difference between the high and average depreciation rate is quite significant compared to the second year, since there is a difference of 20% greater loss, and this is something that can affect some brands or models.

 

It is also important to bear in mind that in some cases, from the tenth or eleventh year (10 or 11), it is considered that the value of the car will be zero with respect to its value in the car market, this, naturally due to the new models on the market, improvements, quality and other aspects that evolve over time, which doesn't mean that the car cannot be sold directly to an individual buyer.

 

Let's not forget that there are brands and models that lose value at a different level, but this is already part of a more specific study of the market in which there are particular conditions and even perceptions, to mention an example, all-terrain vehicles and 4x4 trucks tend not to depreciate like most cars and tend to hold their value a little better, meaning they may have a lower depreciation rate.

 

What should you take into account when using an online depreciation calculator?

As we already mentioned and referred to in the previous sections, there are 3 types of depreciation effects, High, Medium and Low and it can be said that, in general, simple calculators use the average (mean) depreciation rate.

 

The use of the calculator for this type of cases tends to be really simple, they will only ask you for the price of the car that you paid when it was new and then, you must enter the purchase date of the car (when it was new), in this way the calculator will give you a value and you will be able to buy the same with the values that we showed before in the percentage in which the vehicles are depreciated year after year.

 

The result of the calculator can be annual, monthly or even weekly depending on the date on which the calculation is made.

 

What to do if the car is used?

You will be able to find both the purchase value of the new car and the year in the vehicle transfer papers signed with the buyer of your car and with this data you will be able to calculate the depreciation caused in your car at the current time.

 

If for some reason you don't have it, you can search through Google for data on the model of the car and where you will also find the year of release of that model.

 

In the same way, it is recommended that you look for the average price during the first two years of the model's launch, but it is important that you do so taking into account the country in which you are located, remember that the market can vary depending on the country and also , depending on its specifications, for example, when it is a GCC specification vehicle such as those sold in Dubai and the UAE.

 

More detailed depreciation calculators could ask you for more specific data and give you much more specific depreciation values caused at the current time, this, for what we mentioned before that some models or makes of vehicles may have different depreciations, however, remember that If you are in Dubai but use a calculator from a website in the United States, Germany or the United Kingdom, the values provided by said calculator may naturally vary and don't take into account aspects specific to the geographical area that may be considered.

Factors Affecting Depreciation

As we have already mentioned before, there are different factors that can affect the value of vehicles, that is, cause depreciation at "different speeds" depending on the type of vehicle or the perception that exists of these in the market or in the country.

 

In the automobile market, it is quite common for cars that are considered to be of better quality or more reliable, to have lower levels of depreciation, for example, this happens with certain specific make and model cars, some of the best known in this market. sense are the Nissan Frontier and the Toyota Tacoma, these two models in various countries in 2020 show they have lower depreciation levels overall because they are considered more reliable than other models even if over other models that are also 4x4 (4x4 models tend to have lower depreciation levels)

 

Ten vehicles that hold their value in 2020 - Depreciation is the biggest cost of car ownership - AARP

 

Reliability Reliability

Let's keep in mind that vehicles that are considered more reliable in the market tend to have a better reputation for the set of features and what they provide to the user, for the same reason they can better preserve their value over time.

 

It is common to find that there are studies and surveys where the reliability of cars is discussed, many of these exposed through organizations or unions of car users, companies in the automotive segment or specialized portals that carry out these surveys and where their users give their opinion to the respect and this can begin to generate a "trend" by creating a "generalized opinion", however, it is important to always review thoroughly and not stay in the opinions, since many of these can be subjective and may not be considering or including Data that is very relevant such as the level of wear, mileage and other factors that, in general, people tend to ignore due to the subjectivity with which they evaluate vehicles.

 

Unique features

The other example is luxury sports cars, where depreciation tends to be faster and higher, it would seem to be a bit contradictory, because they are high-end cars of excellent quality, parts, reputation and very strong and renowned brands in the market, however, this type of car has a very segmented market because the vast majority of potential consumers want the newest model of a luxury sports car brand and hardly want to buy a used car unless, of course, it is a very rare model or unique with a high reputation, in which case the value may increase rather than decrease.

 

Withdrawn

If we were to talk about the other extreme, a natural factor would be that the car had a “withdrawn from the market” condition, in this case, such a condition would cause vehicles that are still running or are being sold as used to have a much higher depreciation stronger and almost, instantaneously because the cost of auto repairs and parts increases considerably over time.

 

Economy changes

When there is a change in the economy in a country, such as an economic depression that affects a country or region, this can cause new vehicles to depreciate rapidly due to low demand, so they can be purchased at an even lower price, even like a used car of one or two years regarding the previous year, that is, with a lower price between 20% or 30%

 

The popularity of the model

In market and property trends, psychology also plays an important role; when a vehicle has gained a reputation among a specific segment of the population or in general, cars can maintain their price even from one year to the next, it is common to find car models that may have a better reputation and reliability due to their characteristics for certain segments or regions, for example, 4x4 cars for regions where strong environmental conditions proliferate or with multiple geographic conditions within the same area (desert and coastal zone) are best valued for their resistance and adaptability.

 

Popularity can change quickly

It is important that we bear in mind that the valuation of a vehicle and how its depreciation level changes in the market of a country can vary rapidly, because although we can buy a new vehicle of a specific make and model that has been highly recommended for several years and has been very popular in the market, with the launch of a new version, the resale value of the vehicle can drop drastically in one or two years even, above the average accumulated depreciation that the vehicle would normally have and this is an important detail, because many times it is believed that the depreciation caused is constant over time and as we mentioned before in the basic concepts, it can vary in values that are not constant due to different factors.

 

What cars depreciate less?

Talking about which cars depreciate at a lower rate can be somewhat subjective as we explained before, and it is important to try to differentiate between what are opinions based on taste or subjective opinions based on informed opinions and data from the automobile market, but furthermore, it is important to remember that depreciation can be very different from country to country for makes and models.

 

To get an idea, we can keep in mind the following: In Europe, in a survey of a consumer organization in 2015 in the opinion of more than 30,000 European drivers, you could see how 10 vehicle brands were listed as the most reliable (listed from most reliable to least reliable)

 

  1. Honda
  2. Lexus
  3. Toyota
  4. BMW
  5. Mazda
  6. Mitsubishi
  7. Kia
  8. Subaru
  9. Audi
  10. Dacia

 

 

And in Germany reliable cars study in 2015 other brands were listed among the best and the order of the ranking was not the same.

 

  1. Mazda
  2. Mitsubishi
  3. Skoda
  4. Dacia
  5. Toyota
  6. Suzuki
  7. Nissan
  8. MINI
  9. Porsche
  10. SEAT

 

 

germany stats

But if we look at the 2018 reliability survey of more than 76,000 drivers from the same consumer organization that conducted the survey in 2016, we can see how reliability concepts about brands change

 

2018 stats

 

We can also see the results of an automotive research company in California, E.E.U.U., the company named iSeeCars, who did a fairly extensive study

 

Study - Cars that hold their value in USA - 2018

 

analyzing more than 4.3 million sales of new and used cars to identify the levels of depreciation in the car models in the span of 5 years from 2013.

In this study that they carried out for the United States, they obtained that the depreciation value was around 50% of its initial value, but of course, they identified that some vehicle models depreciated more quickly and significantly.

 

 

iSeeCars Top 10 Vehicles With the Lowest Depreciation - USA 2018
Rank Model Average 5-Year Depreciation
1 Jeep Wrangler Unlimited 27.3%
2 Jeep Wrangler 27.3%
3 Toyota Tacoma 29.5%
4 Toyota Tundra 37.1%
5 Nissan Frontier 337.8%
6 Toyota 4Runner 38.1%
7 Chevrolet Silverado 1500 39.7%
8 GMC Sierra 1500 39.9%
9 Subaru Impreza 42.3%
10 Ram Ram Pickup 1500 42.7%
Average for All Vehicles 50.2%

 

As can be seen from said study carried out by iSeeCars, 4x4 vehicles were those that mostly obtained a lower average depreciation during the course of 5 years, but let us remember that the above applies to the United States, if the case were that we had to see reflecting this for the UAE and for Dubai, this study should necessarily consider the cars that were GCC and those that were not, since the cars that are not GCC would naturally have a much higher level of depreciation.

 

Now you have tools to make an informed decision about when to sell your car and when it is the best time to do it, taking into account one of the most important factors and thus get the most out of its use, and then sell it when you no longer need it or want to change the model.

 

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