According to estimates by CarFax, a new car’s value decreases by more than 10 percent as soon as it’s driven off the dealership lot — and will drop a total of 60 percent in the first five years. Minimize the financial pain with these six car depreciation management tips.
- Maintain your car
Chances are, you’ll get better resale value if you’re able to keep your vehicle in good shape — inside and out — and drive a typical or less-than-average number of miles per year. Also, follow the recommended maintenance schedule for your vehicle and keep records of the work. Avoid modifications — such as window lettering — that may make a car more difficult to sell.
- Buy a high-resale model
Some cars hold their value better than others. For example, one study showed that midsize sedans lost 5.5 more percentage points in value than compact crossovers in 2017. By researching resale values before you buy, you can avoid vehicles that get hit hardest by car depreciation.
- Consider a used car
The new car depreciation rate is fastest in the first three years — effectively meaning that vehicles may lose more than 40 percent of value in that time span. Translation: If you buy a three-year-old car, someone else has effectively “paid” the bulk of the depreciation for you.
- Drive your car a really long time
There’s an old saying that the stock market is like a roller coaster: You only get hurt if you jump off. The same is true of car depreciation. Since depreciation only hits you when you sell, you’ll feel the effect less if you keep driving the same car for years after it has lost most of its initial value. Once you’ve decided to purchase a different vehicle, you can plan the best time to buy, too.
- Review possible tax write-offs
If you use your car for a business (even a side business), you may be able to deduct a portion of your car’s depreciation on your income taxes over five years. Consult your tax advisor for details.
- Sell it yourself
Ultimately, depreciation is a simple math problem: [purchase price] – [sale price] = [depreciation]. The more you get for your car when you sell it, the less you lose in depreciation. In general, you may get more through a private sale than a trade-in.