Cars are, by nature, depreciable assets. Aside from the odd collectible, vehicles lose value each year. That said, most drivers are surprised to learn how quickly their cars lose that value. It is something that most people neglect to think about whenever they shop for a new car. But, depreciation in your vehicle's value is the primary reason why most financial planners recommend keeping your old car rather than purchasing a new one. After all, from a fiscal perspective, there are few reasons to spend money for an asset that loses value so quickly.



Below, I will explain car depreciation in more detail. We will discuss sticker price, resale value, and what you can do to help ensure your used car retains as much value as possible.

More To Value Than Sticker Price

Most car salespeople understand intuitively that prospective buyers look at a cars sticker price first. With gas prices climbing higher, they might then look at fuel efficiency. But, it is the rare buyer who seriously considers a vehicles resale value when shopping for a new car. However, shopping by sticker price is a foolhardy strategy. It is not reflective of what the car will be worth after a few years. And because depreciation is the single most expensive factor in purchasing a new car, it deserves priority.

Most automotive experts agree that cars lose, on average, between 15% and 20% of their value after each year. From another perspective, a new car will be worth approximately 35% of its sticker price after 5 years. So, that dazzling new $25,000 Ford Mustang will only fetch $8,750 at the end of its fifth year.

Ensuring Your Cars Resale Value

Fortunately, there is plenty you can do to help support your cars resale value. Experts suggest that owners avoid unconventional interiors or exteriors. They may look great today, but they will become dated quickly and pull your vehicles value down. Also, cars with traditional body styles tend to hold their value more effectively than vehicles with radical styles. Finally, if possible, invest in features that owners will consider attractive or important down the road. For example, when air bags were optional, a lot of car buyers included them within their vehicles. Years later, cars with air bags commanded a premium.

Setting Your Expectations

Your car, whether new or used, is going to depreciate. There's no way to avoid it. The important thing is to understand how that depreciation affects your financial investment in a vehicle. If buyers considered the influence of depreciation when shopping for new cars, its likely that many of them would rethink their decision to get rid of their old cars.