On average, Americans pay nearly $10,000 a year to own their car, truck, or SUV. This number includes insurance, monthly finance payments, gas, and maintenance. Also, it includes depreciation, which makes up over one-third of the total cost of ownership. So how do you prevent depreciation? You won't find a secret way to avoid depreciation altogether, but you can take steps to keep your car's value as high as possible. Here's how.
How Does Depreciation Work?
You must know what you're up against before you take action, so let's get to know depreciation. We use the word depreciation to express the loss of value in an item as time goes by. In the simplest terms, you can express a car's depreciation in the following calculation: Purchase Price - Resale Price = Depreciation.
A new car begins to depreciate the moment you drive it off the lot. A new car can depreciate as much as 30% in the first year alone, depending on the vehicle. During years two and three, the average vehicle depreciates at a much slower rate, from 5% to 8%. Year four typically jumps to a depreciation rate of 15% largely because warranties expire and mileage has accumulated.
Buy a Late-Model Used Car
Buying a late-model used car avoids that initial steep depreciation. Financial experts recommend purchasing a vehicle that's only a year old whenever possible. If you can find a used car in the current model year, even better. You'll get a low-mileage vehicle at a significantly reduced price, and it won't depreciate much over the next two years.
In year four, you'll see another significant depreciation cycle start. Industry insiders suggest selling your vehicle before year four to get the maximum return on your investment. At this point, you'll start the process over again, searching for another 1-year-old vehicle.
Keep Your Car Maintained
Not everyone wants to buy a new car every 2-3 years. If you plan on keeping your vehicle for longer, that works in your favor. It would be best if you keep your car in excellent condition. Keeping up with the manufacturer's recommended service schedule helps retain your vehicle's value. Make sure you save the records of service to prove you've done the right thing.
Drive Fewer Miles
Driving more than 15,000 miles a year depreciates your car's value quicker. Driving less than 15,000 miles a year will slow the depreciation rate. If you like road trips, try keeping them to a minimum. If you have a long daily commute, driving fewer miles presents a problem. You can start a carpool with co-workers. Even finding one person willing to alternate driving days will cut your commuting miles in half, thus adding value to your car.
Buy a Certified Pre-Owned Car
A CPO car offers the advantage of low miles and usually comes with an extended warranty. At Kings Toyota, our CPO vehicles come with a 12-month/12,000-mile comprehensive warranty, a 7-year/100,000-mile limited powertrain warranty, and 24/7 roadside assistance for one year. Plus, all of our CPO vehicles go through a 160-point quality assurance inspection to become certified. Of course, you still must maintain your car and keep the miles driven as low as possible. Since you're starting at a higher value, you have a better shot at retaining a higher value with a CPO vehicle.
Buy a Model Known for Holding Its Value
Buying a car that has a reputation for holding its value just makes sense. You know from the start your vehicle will depreciate slower than others. Toyota consistently ranks in the top three for resale value. In 2021, Kelley Blue Book recognized Toyota as the Best Resale Value Brand. If you're interested in learning why, you can stop by Kings Toyota and speak with one of our friendly, knowledgeable staff.
Long-Term Ownership
Many drivers opt for owning their vehicle well past the point they've paid it off. Twelve years marked the average length of ownership in 2020. Keeping your car longer helps avoid depreciation. After all, depreciation only hurts you when you sell. If you owe more than your car's current value, you're upside down and will lose money in a sale or trade-in.
Modern vehicles routinely run well over 100,000 miles when properly maintained. Some can reach 200,000 or 300,000 miles without significant problems. Just be sure you keep up with regular service, and you could benefit from not having a monthly car payment for years.
Take Advantage of Tax Incentives
If you run your own business or even use your car for work, you can deduct various vehicle expenses from your taxable income. Qualified expenses can include gas, maintenance, and even your monthly payment. Programs and eligible deductions vary by state and federal agencies. We recommend talking with a tax professional to determine what might qualify for your situation.
Privately Sell Your Car
A private sale always results in a higher price than if you were to sell or trade your vehicle at a dealership. The amount varies by model, but if you have the time and patience to advertise your car, show it to potential buyers, and process the paperwork, you will almost certainly receive more money doing so.
Experts recommend making sure you have your car cleaned and detailed before showing it to potential buyers. Also, you should get your vehicle maintenance records organized to show your vehicle was properly maintained. Buyers, particularly in private sales, look for well-maintained cars. If you can't prove the maintenance occurred, you'll likely get less money in return.
Many people prefer not to privately sell their cars because of the hassle of cleaning, showing, and doing paperwork. At Kings Toyota, we offer top dollar for your trade. When you consider our offer against the hassle of a private sale, the cost of trading in your car with us makes sense. You can get a free quote online within minutes.
At Kings Toyota, we know depreciation happens, but we also know that you can take steps to limit its impact. We hope you found this article informative, and if you have any questions or would like to explore a new or used vehicle, you can contact us today. One of our expert team members will happily answer your questions and help guide you to the best car, truck, or SUV that you'll love and will hold its value longer.
