Auto depreciation is a significant factor in a car’s total cost of ownership. There are various ways to calculate it, but unforeseeable events like accidents cannot be taken into account. Some models can gain value over time, and used cars are popular for cost-conscious buyers.
As the saying goes, the moment a new car is driven out of a dealership, its value instantly drops by a fifth or more. While the actual amount may differ between makes and models, the general idea that a car depreciates dramatically after purchase is true. In fact, auto depreciation is one of the key factors in a car’s total cost of ownership, along with its initial cost, taxes, fuel economy, and maintenance cost. As a result, calculating how much a car’s value will fall over time is an essential part of the buying process.
There are several ways to calculate automatic depreciation. The most common method is to find a reputable website that offers a depreciation calculator. By inputting the required variables, such as make, model, year, and trim level, it is possible to determine a reasonable estimate of how much its value may decline over the years of ownership. This is also possible to do by hand, by comparing prices from various dealers and auctioneers, but the Internet has made this a much simpler and much more convenient proposition.
However, automatic depreciation is as much an art as it is a science. There are countless factors that can affect how a car depreciates over time, from external factors like the general state of the economy and the creditworthiness of the particular car company to more specific issues like accident damage and wear. However, auto depreciation calculators do not take into account unforeseeable events, such as accidents, and simply use the past performance of the make and model to predict future value.
Interestingly, while cars initially depreciate heavily, some select models begin to recover some of their initial value over time. In fact, a very small percentage of cars can, in fact, gain value over a long period of time and end up being worth much more than what it sold for at retail. The Volkswagen Beetle, for example, was produced in North America and Europe from the 1950s to the 1970s. These models, in good condition, are worth much more in the 21st century than they originally were.
Automatic depreciation is a big reason used cars are so popular for cost-conscious buyers. A car that has just been returned from a lease, for example, may only be worth a fraction of its asking price despite looking like new, having seen regular maintenance and care during its brief lifespan. As a result, a savvy car buyer may determine that a used, almost-new car makes much more financial sense than one straight from the factory.
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