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Misconceptions About Car Depreciation

Cars in a row

Owning a vehicle is expensive. Not only do you need to pay for the purchase price, but you also have to spend on the operating costs. There’s also one type of spending you don’t often see but has a significant impact on the vehicle’s value: depreciation.

Depreciation is one of the most common topics in the auto world sometimes it falls into the myth trap. That can be a problem since you won’t have a more accurate idea of the value of depreciation of your vehicle. To avoid such a scenario, here are four common myths about it and the facts you need to know:

1. Depreciation Remains the Same throughout the Vehicle’s Lifetime

Many assets such as the house or equipment undergo depreciation. The same thing goes with the vehicle, but what makes it different is it doesn’t necessarily follow the straight method. In other words, the value of the depreciation doesn’t remain the same throughout the lifespan of your vehicle.

Usually, the depreciation is at its highest during the first year. You can lose as much as 30% of its market value. Over time, though, it tends to level off or taper, depending on a number of factors.

2. The Car Loses Its Value within Five Years

Contrary to popular belief, cars can still be in excellent running condition after five years. In fact, the average age of vehicles in the United States is already 11 years old. But why do people like to sell their vehicles when they reach five years?

During this time, they might have already lost up to 60% of their value. From a seller’s standpoint, if you still want to earn even a bit of profit, the fifth year seems to be a good time.

Note, though, some vehicles do well in keeping their residual value. Take for example the used Mercedes Sprinter in Utah. One of the primary reasons is the demand. When it is high, the resale value tends to increase, offsetting the depreciation cost.

Many Americans these days are investing in larger vehicles since they’re more stable, reliable, and multipurpose.

3. Depreciation Makes Selling Cars Difficult

Definitely, depreciation can affect the overall value of the vehicle, but more factors can have a bigger effect on your ability to sell it. These include the following:

  • Overall condition of the vehicle
  • Any product recalls associated with the car
  • Former purpose of the vehicle
  • Mileage left
  • Warranty
  • Insurance coverage
  • Safety features

4. Depreciation Makes Used Vehicles a Good Buy

People buying car

Many people have the wrong idea that depreciation should automatically bring the costs of a used vehicle down. Again, many factors can come into play in determining the overall value of the car in the market.

This also means buying used vehicles doesn’t have to be the smartest choice. Neither is getting the cheapest one on the parking lot. Nerd Wallet has a good guide when you want to buy a pre-owned vehicle.

Overall, it all boils down to what you need, your budget, and what you’re looking for in a vehicle. Once a car meets all these requirements, then you found something that’s worth every penny.

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