Depreciation is defined as the reduction in value of a given item over a period of time based on age and level of use of the specific item. Depreciation is more of a factor in dealing with new versus used vehicles.
When a new vehicle is purchased and driven off the dealer's lot, the value of the vehicle drops almost immediately and will continue to decline for about three to four years. After this period of time, the vehicle will continue to depreciate, however, at a much slower pace. Statistics indicate that in the first year, you will lose approximately 20% of the vehicle's original value due to depreciation. By the end of the fifth year, you will have lost a total of approximately 35% of the vehicle's original value. The pace of depreciation levels off after five years. Hanging on to a vehicle for at least that long will lessen the impact of depreciation on the overall cost of ownership.
You cannot stop or slow depreciation but you can lessen the impact depreciation will have on you. There are several publications that you can obtain to review how specific vehicle's have held their value over time to use as a benchmark when considering purchasing the same make and model. It is also important to remember that overall condition and mileage can also affect a vehicle's value either positively or negatively. Most vehicle price guides will list an average figure which can fluctuate both up and down based on overall condition of the vehicle and actual mileage.
Some makes and models of vehicles depreciate faster than others for numerous reasons. One of the main influences that impact depreciation is the vehicle's continuous appeal to potential purchasers. It's smart to choose options that will appeal to the next buyer such as air conditioning, automatic transmission and power accessories.
